How I'd target $25,000 passive income with just $250 a month

It doesn't take a huge investment to eventually have massive amounts flowing into your bank account for no work.

Woman smiling with her hands behind her back on her couch, symbolising passive income.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Passive income in the tens of thousands each year might seem like the stuff of dreams, but it's well within the reach of the average Australian.

And it doesn't require constant buying and selling, which takes time and money.

If you employ a buy-and-hold strategy of quality ASX shares over the long run, there is no reason why you can't turn a $250 monthly investment into $25,000 of annual income without too much effort.

Here's how you could do it:

From little things big things grow

Comparison site Finder recently found Australians had an average of $40,000 saved up.

Let's start a stock portfolio with that, then add $250 to it each month.

If the portfolio can return 10% compound annual growth rate (CAGR) in the long term, you are on your way.

After 15 years, you'll find the pot has grown to a tidy $262,407.

Graph showing how $40,000 grows into $262,407 after 15 years

What type of ASX shares should one buy to go from $40,000 to $260,000? Growth or dividend?

It actually doesn't matter.

I have a personal preference for growth shares, but the ASX is blessed with many high-performing dividend stocks that could easily provide you 10% CAGR.

You just need to make sure any dividends are immediately reinvested along the way, so that they will contribute to your 10% goal.

Don't create more work for yourself

If you don't want to be buying, selling and stressing on a daily basis, you will want to pick quality businesses with long-term drivers.

Even still, it's prudent to review your holdings every month or quarter to make sure your investment thesis for each stock still holds up.

If it doesn't, then ditch and find another stock that satisfies your criteria.

You will also want to diversify the portfolio. This can be in terms of industries, geography or client demographics.

This will also smooth out the journey so that you don't have to maintain the portfolio as regularly.

Now, with $262,407, how do we get $25,000 of passive income out of it?

Easy. If the portfolio can maintain 10% CAGR, instead of reinvesting it, simply cash out.

Then you will be pocketing an average of $26,240 of passive income each year.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Three happy office workers cheer as they read about good financial news on a laptop.
Dividend Investing

Brokers name 3 ASX dividend shares to buy next week

Let's see why they are bullish on these income options in January.

Read more »

A happy young girls lies in the grass with her father, smiling at the prospects of a bright future.
Growth Shares

I think these 2 ASX shares are ideal for growth investors

Technology is an exciting sector to find opportunities.

Read more »

A young boy sits on his father's shoulders as they flex their muscles at sunrise on a beach
Growth Shares

2 ASX 300 shares I'm very excited about for 2025

2025 could be a good year for these stocks.

Read more »

A woma holding an umbrella smiles as she lifts her face toward a calm sky after the storm.
Dividend Investing

2 ASX 200 stocks that could make it rain dividends

Analysts expect these companies to pay large yields.

Read more »

Growth Shares

4 of the best ASX growth shares to buy now

Analysts are tipping these growing companies as buys. Let's dig deeper into them.

Read more »

Person handing out $50 notes, symbolising ex-dividend date.
Dividend Investing

Why these ASX dividend stocks are top buys this month

Analysts are saying good things about these dividend payers.

Read more »

Dividend Investing

Buy Telstra and this ASX dividend share in January

Let's find out why analysts are bullish about these income options.

Read more »

Blue Chip Shares

Buy Woolworths, ResMed, and this ASX 200 share in January

Analysts think the supermarket giant and these shares are in the buy zone this month.

Read more »