$10,000 of Coles shares could make me $580 in monthly passive income!

Making a long term investment could be the key to generating wealth. Let's see how.

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The share market is a great place to generate a passive income. This is especially the case if you're willing to be patient and make long-term investments.

That's because making investments over long periods allows you to benefit from compounding.

This is what happens when you earn returns on top of returns. It accelerates your wealth creation and positions you to produce a major source of income from ASX shares.

Let's take Coles Group Ltd (ASX: COL) as an example.

As one of the big two players in the supermarket industry, it has been growing at a solid rate for many years.

And barring no major changes in the industry, this trend appears quite likely to continue over the long term.

But just how much passive income could I generate from Coles shares? Let's see what a $10,000 investment could turn into in the future.

$10,000 invested in Coles shares

If I were to invest $10,000 into Coles shares today, I would be able to snap up approximately 522 units.

Over the long-term, the share market has delivered a total return of approximately 10% per annum.

There's no guarantee that it will do the same in the future, but for the purpose of this article we will assume that it does.

If my Coles shares were to grow at the same rate, in 10 years my investment would be worth approximately $26,000. This assumes that I reinvest my dividends each year instead of using them as passive income.

Traditionally, Coles shares have traded with an average fully franked dividend yield in the region of 4%.

If this were the case in 10 years, my 522 Coles shares would be generating $1,040 in dividend income.

Looking longer term

While that's a nice amount of passive income, I'm not going to stop there. Instead, I'm going to let compounding do its thing and grow my investment further.

For example, if I were to let my investment compound at 10% per annum for a further 10 years, it would grow to be worth just over $67,000. At that point, a 4% dividend yield would mean passive income of $2,680.

And if I were to keep going for another decade, bringing the total investment period to 30 years, and letting compounding really start to work its magic, the value of my Coles shares would grow to be worth $175,000.

A 4% dividend yield on this portfolio would now give me passive income of $7,000 a year or approximately $580 per month.

Overall, I believe this demonstrates why making patient long-term investments can be a game-changer for your wealth.

Incidentally, UBS thinks that Coles shares are in the buy zone now. It has a buy rating and $21.00 price target on them, which implies potential upside of almost 10%.

Motley Fool contributor James Mickleboro 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 positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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