Earning a second income from ASX shares is a fantastic way to prepare for a comfortable retirement. One not entirely dependent on your superannuation savings.
And with the ASX offering a wide range of quality dividend shares, Aussie investors don't have to investigate international stocks to secure that second income.
An added bonus of ASX dividend stocks, which you won't find on most international exchanges, is that many of them come with franking credits. Meaning you'll likely be able to keep more of that passive income stream in your bank account come tax time.
With that said, I won't be able to garner a $1,000 monthly second income from my initial $20,000 investment overnight.
But that's okay. Investing is a long game.
If I do it right, I'll get there eventually.
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$1,000 a month in second income from ASX shares
Before we plough ahead, it's important to understand that investing comes with risks. While the ASX has historically gained over time, there are no ironclad guarantees that the future will echo the past.
With that said, to secure my second income I'd look to spread my $20,000 investment across a range of ASX dividend stocks operating in various sectors. That will help decrease the risk of my whole portfolio taking an unexpected hit.
Three ASX companies that fit this bill for me today include ASX 200 retail stock JB Hi-Fi Ltd (ASX: JBH), ASX 200 oil and gas stock Woodside Energy Group Ltd (ASX: WDS), and ASX 200 bank stock Australia and New Zealand Banking Group Ltd (ASX: ANZ).
JB Hi-Fi trades on a fully franked trailing yield of 8.2%.
Woodside trades on a fully franked trailing yield of 11.0%.
And ANZ trades on a fully franked trailing yield of 6.7%.
Over the long term, I'll aim for a more conservative 4% yield across my diversified ASX dividend stock portfolio.
I believe that's reasonable, bearing in mind that the average yield of the three ASX 200 shares I listed above comes out to 8.6%.
Now to get to my $1,000 a month, or $12,000 a year, second income, I'd make use of the power of compound returns with a dividend reinvestment strategy.
With capital gains in mind as well as dividend yields, I'd shoot for an 8% compound annual growth rate.
Starting with my initial $20,000 investment (whether I make that all at once or over time), it will take me just over 35 years to garner that $1,000 monthly second income.
If I made that single $20,000 investment at the age of 31, I should then be able to look forward to reaching my goal by the time I'm 67.
