ASX passive income: Earn $1000/month

Here's how you could turn the ASX into your own personal ATM.

| More on:
A smiling woman with a handful of $100 notes, indicating strong dividend payments

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Having passive income would certainly be very helpful in the current environment.

Unfortunately, unless you're lucky enough to already have a bank account filled to the brim with cash, it's going to be too late to generate a sizeable income from the share market immediately to combat the cost of living crisis.

However, don't let that stop you from making it a long term goal, so that you are ready to tackle any cost of living shocks that could happen in the future.

Generating $1,000 of monthly passive income from the ASX

If you wish to pull in $1,000 of monthly passive income from the ASX, you're going to need to generate $12,000 of dividends each year.

The good news is that there are a fair number of ASX shares on the local bourse that analysts are forecasting to provide 6%+ yields. This includes the likes of APA Group (ASX: APA), Stockland Corporation Ltd (ASX: SGP), and Accent Group Ltd (ASX: AX1).

If you are able to build a diversified portfolio of ASX shares that provides you with an overall yield of 6%, you would need a portfolio valued at $200,000 to generate total dividends of $12,000 a year.

Investors that already have this amount of cash to invest can now do this and relax and watch the passive income come in. But if you're starting from zero, you will need a plan.

How to get started

The first step for passive income investors to take is to make consistent investments in the share market.

For example, if you can invest $5,000 into the share market each year, your portfolio would grow to be worth $200,000 in 16 years if you achieved an average total return of 10% per annum. This is broadly in line with historical averages, so not guaranteed but certainly possible.

After which, investors will need to find a high quality group of ASX shares to invest these funds into.

Investors may wish to build a diverse portfolio by splitting their $5,000 investment across a number of ASX shares. This could also include ETFs, which allow investors to buy large groups of shares in one go.

Next, let compounding work its magic. This is what happens when you earn returns on top of returns. It essentially supercharges your wealth, particularly the longer you leave it.

For example, 10 years of investing $5,000 and earning a 10% per annum return would turn into $88,000. But if you keep going just six more years, you will have grown your portfolio by a further $112,000 to the target amount of $200,000.

At that point, you now have enough to start generating material passive income from the ASX.

Overall, by following these steps, you could turn the ASX into your own personal ATM.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
Dividend Investing

Looking to bank the boosted CBA dividend? You better hurry!

On the hunt for passive income?

Read more »

Woman with $50 notes in her hand thinking, symbolising dividends.
Dividend Investing

1 ASX dividend stock down 20% I'd buy right now

This company looks like a good buy in my view.

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Dividend Investing

Buy these ASX dividend shares for 5% to 8% yields

Analysts think these shares would be top options for income investors.

Read more »

Happy young couple saving money in piggy bank.
Dividend Investing

How long would it take to turn $20,000 into $100,000 with ASX dividend stocks?

It may not take as long as you think to generate wealth in the share market.

Read more »

Woman with an amazed expression has her hands and arms out with a laptop in front of her.
Dividend Investing

Forget term deposits and buy these ASX dividend shares

Analysts think these income stocks would be great picks for investorss.

Read more »

A businesswoman on the phone is shocked as she looks at her watch, she's running out of time.
Financial Shares

Hoping to bag the next dividend on IAG shares? Better hurry…

The insurance giant has announced a 20% higher interim dividend of 12 cents per share.

Read more »

Wife and husband with a laptop on a sofa over the moon at good news.
Dividend Investing

These ASX dividend shares could be better than CBA

Analysts see these top shares as great alternatives for income investors.

Read more »

Woman calculating dividends on calculator and working on a laptop.
ETFs

Here's how much the Vanguard MSCI Index International Shares ETF (VGS) currently pays in dividends

The yield on this ETF might surprise you.

Read more »