How to make $50,000 passive income a year from ASX shares

How do you like the sound of pulling in $50,000 a year without having to lift a finger? I'm sure most would agree that it would be a dream come true.

The good news is that it is possible to turn this passive income dream into a reality with ASX shares and a disciplined approach.

Whether you're starting from scratch or already have a significant portfolio, the key is to invest wisely and harness the power of compounding and dividends. Let's see how it could be done:

Starting with a million-dollar portfolio

If you are lucky enough to have a portfolio worth $1 million, you're already in the enviable position to start generating $50,000 annually. The strategy here is to reshape your current investments to focus on high-quality ASX dividend shares that collectively offer an average dividend yield of 5%. This isn't an overly challenging endeavour as there are plenty of options out there for income investors to choose from. This article here looks at a few with 5%+ yields.

Building your portfolio from scratch

If you are starting with nothing, the path to $50,000 passive income requires time and consistency. The goal is to grow your portfolio to $1 million over time by investing in quality ASX growth and blue chip shares. But thanks to the power of compounding, this may not be as hard as you feared. By contributing $1,000 a month into your ASX share portfolio and achieving an average annual return of 10% — which is a realistic target based on historical market performance — you could reach the $1 million mark in approximately 23 years.

Focus on quality

When investing over a long period it is important to focus on buying the highest quality companies you can find. These are companies with competitive advantages and strong growth outlooks. Companies such as CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), and WiseTech Global Ltd (ASX: WTC) are good examples of the type to look for. They have been compounding machines over the past decade and could continue this trend in the future.

Reshaping your portfolio for income

For those starting from nothing, once you've hit the $1 million milestone, the next step is to transition your portfolio from a growth-focused strategy to an income-focused one. This means reallocating your investments into high-quality ASX dividend shares with sustainable and attractive yields.

Sit back and enjoy

With a $1 million income portfolio yielding 5% annually, you'll generate $50,000 in passive income. This can provide both financial security and freedom, allowing you to focus on what matters most without worrying about your finances.

Overall, whether you're starting with a sizeable portfolio or building one from scratch, making $50,000 a year in passive income is possible with ASX shares.

The post How to make $50,000 passive income a year from ASX shares appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has positions in CSL and WiseTech Global. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024