The ASX share market is an excellent pathway for investing money that can deliver capital growth and unlock an impressive second income. If done wisely, an investor with $15,000 can also enjoy a pleasing level of dividends.
But investing $15,000 won't create enough cash flow to retire straight away. With a portfolio that delivers a 5% dividend yield, for example, a $15,000 fund will create $750 of annual dividend income — just over $2 per day.
But there is a way to make significantly more than that through the magic of compounding.
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Compounding is a powerful tool
We can all utilise the power of compounding with time and money. Savings accounts deliver compounding because they pay interest, and then the interest earns interest, and so on.
As Albert Einstein once said:
Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.
The global share market has returned an average of around 10% per annum over the long term, and in the last 10 to 15 years, it has done even better than that. The Vanguard MSCI Index International Shares ETF (ASX: VGS) has returned an average of 12.9% per annum since its inception in November 2014.
And plenty of individual ASX shares have also performed strongly.
If we take $15,000 and invest it in businesses that can deliver good returns, it can grow into a much bigger number by itself. Think how a small sapling tree can grow into a mature tree over time all by itself. We can do the same with investing in ASX shares for a second income.
Plant a tree now, and it can eventually bear wonderful financial fruit in the future.
With the magic of compounding, if we invested that $15,000 and it grew by 10% per annum for 25 years, it would become worth $162,521, according to Moneysmart.
And with a 5% dividend yield, investors would receive a second income of $8,126 annually or an average of $22 per day.
Which ASX dividend shares I'd buy
I believe it's a good idea to own shares in companies capable of producing organic growth. These companies can deliver pleasing returns in coming years while also providing a good level of dividend income. Another tip to maximise wealth growth potential is to re-invest the dividends.
I'd choose businesses like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Wesfarmers Ltd (ASX: WES), Telstra Group Ltd (ASX: TLS), Centuria Industrial REIT (ASX: CIP) and Sonic Healthcare Ltd (ASX: SHL). These are stocks that can deliver solid total returns and a good second income, in my view.
Some exchange-traded funds (ETFs) could also be an excellent way to 'grow the tree' including VanEck MSCI International Quality ETF (ASX: QUAL) and VanEck Morningstar Wide Moat ETF (ASX: MOAT).
