A properly diversified ASX share portfolio offers investors a great means to achieve a lifelong passive income.
As with most things in life, the sooner you commence on the journey, the better the outcome is likely to be.
With that said, it's never too late to invest in a basket of quality ASX shares trading at fair prices to build up that welcome passive income stream.
Lifelong passive income from ASX shares
There are three ways you can grow your wealth with ASX shares.
First, if the share prices of the companies you've invested in go up over time.
Now that won't be the case for every stock over every given time period. But with history as our guide, we can assume that a diversified ASX share portfolio will gain over time.
The S&P/ASX 200 Index (ASX: XJO), for example, has gained 15% over the past three years.
The second way to boost your wealth and passive income stream is through the dividends many of the larger, profitable ASX companies pay their shareholders.
This can be especially rewarding when those dividends are fully franked, meaning you should be able to hold onto more of that cash come tax time.
To illustrate the importance of dividends, the S&P/ASX 200 Gross Total Return Index (ASX: XJT) – which includes all cash dividends reinvested on the ex-dividend date – has gained 30% over the past three years.
And the third way to boost your lifelong passive income with ASX shares is time.
As legendary investor Warren Buffett famously advised, "Embrace what's boring, think long-term, and ignore the ups-and-downs."
Indeed, investing isn't a get-rich-quick scheme. Instead, it tends to reward the patient investor. One who keeps their eyes on the horizon and doesn't buy and sell on impulse.
This will enable you to take advantage of the magic of compounding.
Here's what I mean.
Let's say that, starting with nothing, you invest $1,000 a month into a diversified ASX share portfolio to build your passive income stream.
Taking the 10% annual returns of the ASX 200 Total Return Index as our benchmark, after five years and $61,000 invested, your portfolio would be worth $79,082.
Not bad.
But after 10 years and $121,000 invested, that same ASX share portfolio would be worth $207,552.
Now here's where that compounding magic really begins to take off.
If you maintained this strategy for another 10 years, then after 20 years and $241,000 invested that portfolio would be valued at $766,697.
At that point, you could begin to draw out $76,670 a year in passive income without reducing that capital stake.
Some leading ASX 200 dividend stocks to consider
A properly diversified ASX share portfolio should contain a wide selection of stocks operating in various market sectors, ideally across different geographic locations.
That should minimise the risk of your portfolio taking an unexpected hit if any particular sector comes under pressure.
While there's no magic number, 10 is a decent target.
Here are four leading S&P/ASX 200 Index (ASX: XJO) dividend stocks paying fully franked yields to consider adding to your passive income portfolio.
- ASX 200 bank stock Commonwealth Bank of Australia(ASX: CBA) trades on a yield of 3.9%.
- ASX 200 mining stock Fortescue Metals Group Ltd (ASX: FMG) trades on a yield of 8.2%.
- ASX 200 retail share Harvey Norman Holdings Ltd (ASX: HVN) trades on a yield of 4.4%.
- And ASX 200 energy share Woodside Energy Group Ltd (ASX: WDS) trades on a yield of 7.1%.
And remember, if you're ever in doubt, don't hesitate to seek out professional advice to help you begin building that lifelong passive income today.
