For many Aussie investors, being paid a large sum of money without breaking into a sweat or even lifting a finger would be a dream come true.
Imagine having $70,000 a year in passive income, flowing into your bank account. That's enough to replace a salary, fund early retirement, or simply give you more freedom to choose how you spend your time.
Well, the good news is that it is possible with a combination of time, patience, capital, and ASX shares.
But how? Here's an easy way to try and achieve this goal.
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Forget about passive income for now
When people start looking to build a meaningful passive income with ASX shares, it is tempting to chase high-yield dividend stocks from day one.
But if you're starting with a modest portfolio, that approach can feel like watching paint dry. A 5% dividend yield on a $20,000 portfolio only generates $1,000 a year. While this is very welcome, it isn't exactly life-changing.
Instead, the smarter move is to focus on growing your portfolio first with monthly investments. That could mean targeting a mix of blue chips, high-quality growth shares, and ASX ETFs — the kind of investments that can compound over time and push your portfolio into seven-figure territory.
Companies likes Pro Medicus Ltd (ASX: PME), WiseTech Global Ltd (ASX: WTC), or Xero Ltd (ASX: XRO) spring immediately to mind.
The 10% growth plan
The first step is to build a portfolio that achieves a 10% average annual return over time, which is in line with historical averages but not guaranteed of course.
If you started with a $10,000 ASX share portfolio, then were able to invest $1,000 into your ASX share portfolio each month, you would grow your investments to $1.4 million in a touch over 25 years.
Switching to income
Once your portfolio hits the $1.4 million mark, you can shift gears from growth to passive income. By transitioning into a dividend-focused portfolio with a 5% average yield, you'll generate $70,000 per year in income.
If you were building this income portfolio today, this might come from a mix of high-yield options like the Vanguard Australian Shares High Yield ETF (ASX: VHY) or the banks, Telstra Group Ltd (ASX: TLS), GQG Partners Inc (ASX: GQG), or Accent Group Ltd (ASX: AX1).
And thanks to franking credits, the after-tax income could be even better for Australian residents.
Foolish takeaway
Generating $70,000 a year in passive income from ASX shares is certainly possible — but it doesn't start by chasing yield. It starts with building capital, investing for growth, and letting compounding do its thing.
It may take some time to get to the target, but good things come to those that wait.
