If you're fortunate enough to have $10,000 in your savings account and have no plans for it, then it could be worth putting it to work for you in the share market.
Especially given that ASX shares have historically delivered significantly better returns than savings accounts.
In addition, it is possible to transform these funds into a second income if you invest wisely.
Generating a second income with ASX shares
With an average dividend yield in the region of 4%, a $10,000 investment would deliver a second income of approximately $400 a year.
That's hardly much to get excited about. But let time and compounding do their thing and it could be a very different story.
For example, the share market has historically generated an average annual return of 10%.
This means that if you were to invest your $10,000 into a group of high-quality ASX shares and matched the market return, in 25 years you would have a portfolio valued at approximately $110,000.
That's $100,000 more than you started with, without lifting a finger.
At this point, if you were to now reconstruct your portfolio to ensure you average a 4% dividend yield across it, you will be generating $4,400 in income each year.
By spreading this out evenly across the months, you would be pocketing a second income of just over $360 a month.
It is also worth noting that it is quite easy to construct a portfolio with a much higher dividend yield.
Thanks to shares like ANZ Group Holdings Ltd (ASX: ANZ) and Telstra Group Ltd (ASX: TLS), averaging a 5% yield is achievable across a portfolio.
If you were to do this with your $110,000 portfolio, your second income would be $5,500 per annum or $460 a month.
And the best thing about ASX shares is that if they and their dividends continue to compound, your second income would grow each year thereafter.
For example, a 5% increase in dividends the next year would result in $5,775 of income per annum or $481.25 per month.
