Imagine having an extra $1,000 arriving in your bank account every week without having to work for it.
That could make a huge difference to your lifestyle, particularly if you are approaching retirement.
And while building a portfolio capable of producing this income will take time, it is something you can start working towards today.
Here's how.
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Start by buying yourself some future income
One way to approach this goal is to think about how much income each investment could eventually provide.
For example, every $20,000 invested in a portfolio yielding 5% would generate $1,000 in annual passive income.
Build that portfolio to $100,000 and you're looking at $5,000 a year. Reach $200,000 and the potential income doubles to $10,000.
Ultimately, you would need approximately $1.04 million invested at a 5% yield to generate $52,000 a year.
But of course, starting from zero means there is plenty of work to do before those dividends start paying the bills.
Let growth do the heavy lifting
Rather than chasing dividends immediately, I would start by focusing on building the portfolio's value.
This could mean investing in quality ASX growth shares such as Goodman Group (ASX: GMG) and ResMed Inc (ASX: RMD), alongside established companies such as Wesfarmers Ltd (ASX: WES).
Exchange traded funds (ETFs) could also play a role, providing exposure to hundreds of Australian and international stocks.
The idea is to build a portfolio capable of growing over many years while reinvesting any dividends received.
Regular contributions would be equally important. Investing $1,000 a month and achieving an average annual return of 10% could potentially build a portfolio worth approximately $1.04 million in 23 years.
That return isn't guaranteed, nothing is in the share market, but it demonstrates what consistent investing and compounding could achieve.
Increasing those monthly contributions as your income grows could also bring the target forward.
Turn your wealth into passive income
As the portfolio approaches its target, the investment strategy could gradually change.
Instead of focusing primarily on capital growth, investors could start directing more money towards companies offering attractive and sustainable dividends.
This could include infrastructure shares such as APA Group (ASX: APA) and Transurban Group (ASX: TCL), property investments such as HomeCo Daily Needs REIT (ASX: HDN), and dividend-focused ETFs.
The aim would be to achieve an average yield of approximately 5% without relying too heavily on any individual company.
Once the portfolio reaches $1.04 million, that yield would produce $52,000 annually before tax.
And if the underlying companies can grow their dividends over time, the income stream could increase as well, potentially helping it keep pace with rising living costs.
