Getting close to retirement changes how I think about investing.
Income starts to matter more, and I want that income to be as reliable as possible. At the same time, I still want the portfolio to hold up over the long term.
Here is how I would approach buying ASX dividend shares for passive income at this stage.
Image source: Getty Images
Focus on the starting yield
The price you pay matters more when you are investing for income.
Buying ASX shares after a pullback can lift the dividend yield and improve the income from day one. That is why I pay close attention to companies trading below their usual levels.
For example, when a business like Harvey Norman Holdings Ltd (ASX: HVN) falls well below its highs, the potential yield on offer with its shares can become very generous.
In fact, according to CommSec consensus estimates, Harvey Norman shares are expected to offer a dividend yield of around 8% in FY27.
Look for businesses that can keep paying
A high dividend yield is only useful if it can be sustained.
I focus on companies that generate consistent cash flow and have a track record of paying dividends through different conditions. That often leads me toward businesses with strong positions in their markets.
Wesfarmers Ltd (ASX: WES) is a good example of this. The Bunnings and Kmart owners' earnings are supported by demand that tends to hold up well in most economic environments, which helps underpin regular and growing dividends.
Diversify
I think a balanced income portfolio is important.
An easy way to achieve this is with an exchange-traded fund (ETF) like the Vanguard Australian Shares High Yield ETF (ASX: VHY) or the Betashares S&P Australian Shares High Yield ETF (ASX: HYLD).
They allow you to buy a large group of ASX dividend shares through a single investment. This provides almost instant diversification to a passive income portfolio.
Keep it manageable
As retirement approaches, simplicity becomes more important.
I would rather own a handful of income-producing ASX shares that I understand than a large number of positions that are harder to follow. That makes it easier to track performance and stay confident in the portfolio.
Foolish Takeaway
I think building a passive income portfolio comes down to buying the right shares at the right price and holding them over time.
A mix of reliable dividend payers and opportunities created by share price weakness can help build a steady income stream, which is what I would focus on as I get close to retirement.
