[date-today format='F j, Y']

My route to creating £1,000 in passive income a month from investing

Creating passive income is very attainable for most people, as long as it is a goal pursued with focus and consistency. Here's how this writer...
photo of outer space
Photo by NASA

Creating passive income is very attainable with focus and consistency. Mathematically speaking, even with a small starting sum, a decent, growing passive income can be created. And over time it can snowball because of compounding – when dividends are reinvested to create more income year after year.

Passive income and compounding

There are four main factors at play when it comes to creating a portfolio of investments that will then pay out income. There’s the starting amount, the monthly contribution, the returns percentage, and time. All are important. It’s easier though to control the monthly contribution and amount of time invested than it is to create a bigger starting amount or increase investment returns. So I’d focus on these. 

Really the main thing is to get started as soon as possible because time in the market is a critical component to allow compounding. It’s why Warren Buffett has made so much of his wealth in recent years. The snowball he started rolling many years ago has gathered pace and got bigger and bigger. This is the power of compounding.

My route to creating £1,000 a month passively

To create £1,000 in an average month I calculate that I’d need an investment portfolio equating to around £300,000. If there’s an average yield of 4%, then that’s £12,000 per year.  This is realistic given the FTSE 100 dividend yield average is only a little below 4%, with many shares yielding in excess of 5%. However, bear in mind dividends are not guaranteed and companies do sometimes cut dividends. 

Nonetheless, getting to this amount of money is achievable. If I start with nothing but add £500 a month and earn a return of 8% (so dividends and share price growth combined, known as total return) then it’ll take 23 years to get to £300,000. Upping the contribution to £650 per month but keeping everything else the same would bring it down to under 20 years. Of course, these variables are not guaranteed and can change as the illustrations prove. 

So my route to generating passive income is to invest every month. I’ll invest in UK shares to try and earn a total return at or above 8% a year.

Particularly to make the investing passive, I’ll focus on higher yielding, high-quality shares. Examples of shares meeting this criterion, in my opinion, are Persimmon, Polar Capital, and CMC Markets. I think the current market sell-off has also created some opportunities for buying great companies at cheaper prices. That includes the three companies just mentioned, which are all on reasonable valuations, but also some AIM-listed companies. Boohoo, GB Group, and Numis are all examples fitting this category.

The crux of my plan to create £1,000 a month passively is to invest in UK shares. The present market volatility potentially creates opportunities for long-term investors and I intend to buy more shares over the coming weeks. This will help me to create passive income for the future and build my investment portfolio up to a value of £300,000, or hopefully even more.

The post My route to creating £1,000 in passive income a month from investing appeared first on The Motley Fool UK.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

More reading

1 FTSE 100 growth stock with 6% dividend yield I’d buy today
Is the Royal Mail Group share price cheap?
A top deep-value FTSE 100 stock to buy for the next decade
I’m ignoring Russian stocks and concentrating on the best UK dividend stocks to buy now
Stock market crash: 4 important things I realised this week

Andy Ross owns shares in Persimmon, Polar Capital Holdings and CMC Markets. The Motley Fool UK has recommended Polar Capital Holdings and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.





© 2022 The Daily Encrypt. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Latest News