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How average savers can turn £180 a month into a lifelong second income

Story by John Fieldsend

A recent study put the average UK household saving at £180 a month. Putting a couple of hundred away monthly is to be applauded and this level of saving can even lay the groundwork for a lifelong second income.

More and more people are targeting this kind of income too. Some 4,000 people have reached £1m in ISAs now with around half of them hitting the figure in the last year alone.

Reaching the million-pound mark given the deposit limits on those accounts is impressive indeed, but such a large nest egg isn’t needed for a life-changing income.

Losing cash

I’ve been working towards something like this myself, and for me, financial security is what appeals most. The State Pension isn’t really enough to live on (and only 38% of under 35s expect to receive it). Plus near-double-digit inflation makes saving in cash look unattractive. 

Inflation is a killer for average savers. Our society is built around low levels of inflation, it’s true. While keeping cash circulating benefits an economy, it hurts savers who see their cash lose value constantly.

Even single-digit levels of inflation can be devastating. A 5% inflation rate means prices double after just 14 years. In other words, a £3 sandwich becomes £6. Perhaps more pertinently, £1,000 of savings will have the buying power of £500. 

While current inflation levels are unusually high, whichever way you slice it, all of us are seeing our cash being worth less and less. And with money losing value, I see inflation-beating investments as a no-brainer.

Let’s waste no more time then. On to the strategy. My plan essentially requires two things: a return above inflation and compound interest over decades. 

What I’m doing

For inflation-beating returns over years and years, I see no better option than investing in high-quality stocks. 

I invest the same way as billionaire Warren Buffett. He doesn’t buy stocks for a few days, but for a few decades. He says his “favourite holding period is forever”. 

Slow and steady

By looking long term, I can enjoy the inflation-busting effect of stock market returns while avoiding the erratic ups and downs of day-to-day share price moves.

Better still, £180 a month is more than enough to dip my toe in the water. These days, fees to buy stocks are only a few pounds with modern platforms like Hargreaves Lansdown or AJ Bell that make it simple for anyone to invest. 

And as for picking the stocks? Well, the Foolish musings of this very website are as good a starting point as any!

The post How average savers can turn £180 a month into a lifelong second income appeared first on The Motley Fool UK.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

Richard T togherr@ntlworld.com

Hi Anthony, It would be really helpful if you could maintain a link on your site which takes readers to your current Snowball portfolio please. Many thanks RT

I will post any changes for the portfolio but it is best if everyone carries out their own research before parting with any of the hard earned. Everyone will be at a different stage of their accumulation/de-accumulation journey, so when I bought is not really relevant. When I started the portfolio the plan was a dividend yield of 5% but as the underlying Investment Trusts fell in price the yield rose and the current plan is for a dividend re-investment at around 7% plus. GL

Income drawdown vs an annuity – or both?
How to invest your pension and live off it in retirement

Do you want investment growth AND a guaranteed pension? How to combine drawdown and annuities to maximise retirement income

Income drawdown depends on investment performance, and though this is more likely to be successful the longer you are invested, the returns to your fund will be volatile from one year to the next.

There are no guarantees, but you have control over the level of income you receive and can vary it over time.

From a £75,000 fund you could expect a drawdown policy to provide an annual income from age 69 of around £6,100 which may last until 90 if investment performance is good.

An annuity does provide a guaranteed level of income until you die, but the annual figure would likely be lower at around £5,750 per annum at current rates.

£££££££££££££££

For me it’s a dividend re-investment plan every day, thru thick and thin.

There will be plenty of thin.

If investment performance is good.

Do u really want to gamble your retirement income of the vagaries of the market ?

With a 75k pot

Never bet against America.

WB

££££££££££

Not a share for this blog but could be one to buy when the next market crash happens.

With the latest dividend for July being announced the the income figure will be

£6,498.00

The 2024 fcast is 8k and the target 9k.

August is a weak month for dividends, so please do not scale the figure to arrive at an end of year total, although the fcast is more likely to be achieved than not.

Dividend forecast and return of proceeds

Given the prompt progress of the realisation of assets, it is the current intention of the Company to make a dividend payment for the quarter ending 30 June 2024 of 1.375 pence per share, which is consistent with prior dividends paid. Future dividend payments will be evaluated on a quarterly basis, taking into account the payout level required for investment trust status, the progress of asset realisations and overall profitability for the period from the remaining income generating assets.

It is also the intention to make an interim return of capital to shareholders in the current financial year, after the disposal of the Hydroelectric Portfolio and in advance of the anticipated members’ voluntary liquidation.

Re-investing dividends is not a Get Rich Quick Plan but more like watching grass grow.

I expect to beat the 2024 year end target of 9k, although not guaranteed.

If we carry this figure forward, compounding at 7% next year’s target will be

(2025) £9,630 and the following year the target will be

(2026) £9,674

All baby steps, although this would equal the plan’s target for year end 2028.

Hopefully the target could be beat as the current portfolio’s blended yield is 11% but that depends heavily on future markets so is not a fcast.

9k compounded at 11% for 2 years equals 11k, possible but not likely.

The ten year plan is still to provide a ‘pension’ of 14-16k pa.

GL

8.1% dividend yield. 2 dirt cheap passive income stocks I’d buy to target £1,620

Looking for top passive income stocks to buy on sale? I think these two IT giants could be too cheap to ignore at current prices.

Royston Wild

Published 23 June,

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

The London stock market has been underperforming for years. But it’s not all bad news. After all, investors today can now pick up some top passive income stocks at rock-bottom prices.

Two of my favourite dividend shares are shown below. As you can see, each trades on a super-low price-to-earnings (P/E) ratio and carries a gigantic dividend yield.

STOCK FORWARD P/E RATIO FORWARD DIVIDEND YIELD

Impact Healthcare REIT (LSE:IHR) 7.7 times 8.3% 

Greencoat Renewables (LSE:GRP) 9.7 times 7.9%

If broker projections are accurate, I have a great chance of supercharging my dividend income over the next 12 months.

More accurately, a £20,000 lump sum invested equally across these stocks would give me a £1,620 passive income during the period. This is based on an average dividend yield of 8.1%.

I’m confident that these UK shares will steadily grow dividends over the long term, too. Here’s why I’d buy them for my own portfolio if I had spare cash to invest.

Cheap REIT

High interest rates are an ongoing threat to real estate stocks. They depress the net asset values (NAVs) of these companies’ property portfolios and push up borrowing costs.

But the stunning all-round value of Impact Healthcare REIT suggests now could be a great time to buy. Not only does it trade on those rock-bottom P/E ratios and carry that 8%+ dividend yield. At 85.1p per share, Impact also trades at a near -27% discount to its estimated NAV per share of 116p.

As a major care home provider, it looks in good shape to capitalise on the UK’s growing elderly population. And REIT rules mean it could be an especially good pick for future passive income.

In exchange for certain tax breaks, these shares must pay at least 90% of their annual rental profits out by way of dividends.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Green dividend machine

Investing in renewable energy stocks could also deliver the holy grail of healthy capital appreciation and dividend income. Demand for clean energy is growing sharply as legislators take steps to wean their countries off fossil fuels.

I think Greencoat Renewables could be a great share to help me exploit this opportunity. The business owns onshore and offshore wind farm assets all across Europe, from which it sells power to electricity companies.

On the downside, its ability to generate power can be significantly compromised during calm weather periods.

But on the other hand, the stable nature of energy demand means its earnings aren’t affected by broader economic conditions, unlike most other UK shares. This in turn can make it a dependable dividend payer year after year.

What’s more, Greencoat’s wide geographic footprint helps reduce the threat of adverse weather patterns at group level. The bulk of its assets are in Ireland. However, its wind farms are also in France, Spain, Sweden, and Finland.

Over the long term, I think this could prove a hugely lucrative stock to own in my portfolio.

Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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Tip Sheet

This is Money says Alliance is doing little wrong, while The Telegraph tips HICL Infrastructure to build itself back up.

ByFrank Buhagiar

This is Money ALLIANCE TRUST: The ‘dividend hero’ that’s poised to maintain its amazing record

What makes a record amazing? How about 58 consecutive years of dividend growth. For that’s the number of years in a row Alliance (ATST) looks set to raise its payout to shareholders after the global investor unveiled a 6.62p quarterly dividend, its first for the year. Crucially, 6.62p is higher than last year’s 6.18p paid.

But ATST is not just a dividend growth story, “As for share-price gains, Alliance is also doing little wrong. These have been 13 and 18 per cent over the past six months and year, respectively.” A thumbs up for the fund’s differentiated approach – rather than hand over the funds to one investment manager, ATST uses Willis Towers Watson (WTW) to identify the best managers around. WTW then gives these best-in-class managers a portion of the fund’s assets to invest and manage as they see fit – typically each manager invests in around 20 different stocks. Currently, the £3.4 billion fund employs 10 managers who run 11 different segments of the fund’s assets.

The article concludes by highlighting the tagline on Alliance’s website “The trust has its own website (alliancetrust.co.uk) and has taken to the airwaves to promote its suitability as a long-term investment – tagline: ‘Find your comfort zone’. It is a sign, some say, of the confidence that the trust’s board has in WTW.” And speaking of airwaves, you can have a listen of the fund’s latest doceo video update here.

Questor: This infrastructure fund is building itself back up

The infrastructure fund in question? HICL Infrastructure (HICL), first tipped by The Telegraph tipster back in 2014. Different world since then of course. Look no further than interest rates – Bank Rate was 0.5% back in 2014; today its 5.25% with most of the increase taking place over the last couple of years. Trouble is, infrastructure funds, which are viewed as bond proxies due to the government-backed revenue streams they receive from long-term contracts, are “sensitive to rises in the yields on government bonds which increase when interest rates go up.” Cue a steep fall in HICL’s share price from 176p back in early September 2022, at which point the shares traded at an 8% premium to net assets, to 121.8p today, a 22% discount to NAV.

But there could be light at the end of the tunnel. For as Questor points out, with both the Canadian and European Central Banks both cutting rates earlier this month, “it is probably only a matter of time before the Bank of England follows suit and lowers the Bank Rate from 5.25pc”.

The £3.2 billion fund hasn’t been sitting on its hands waiting for rates to be cut though. During the last financial year, HICL raised £500m by selling nine infrastructure projects. Crucially, the sales were at prices either at or above their previous valuation, thereby validating the internal valuation process. What’s more the proceeds raised have enabled the extensive credit facilities to be repaid and a £50m share buyback programme to be launched. And thanks to savings made, a pick-up in inflation-linked revenues and its investment in Channel Tunnel HS1 rail link resuming distributions to its shareholders, the fund has raised next year’s dividend target.

Questor goes on to note that broker Stifel rates HICL, along with other infrastructure funds, a “buy”, highlighting how dividend yields across the sector offer “an attractive margin over gilts, especially with their shares on wide discounts.” Questor concludes “That’s a view we share.

The Results Round-Up – The Week’s Investment Trust Results

Which two funds are celebrating 10 years as listed companies but face continuation votes later this year? And which fund is looking to grow net assets organically to £5 billion?

ByFrank Buhagiar

Hansa’s (HAN) star performer

HAN reported a +25.1% NAV total return for the year. The star of the show was the fund’s holding in Oceans Wilsons which was up +55.3%. Excellent timing, as HAN is waiting on the findings of a strategic review that is running the rule over Brazil’s largest integrated provider of port and maritime logistics. According to the latest update, non-binding indicative offers have been received for Oceans, which accounts for around 30% of HAN’s net assets.

JPMorgan: ‘In our view as a package Hansa Trust is an eclectic mix of assets and any investor has to be comfortable in particular with the large strategic holding and concentrated shareholder register until there is more clarity on what Ocean Wilsons will do, we remain Underweight’.

Ashoka WhiteOak Emerging Markets (AWEM) punching above its weight

AWEM’s Annual Report included an +11.81% NAV total return, comfortably ahead of the MSCI EM (GBP) Index’s +7.94%. Reward for those shareholders who backed the May 2023 IPO, the first and only investment company listing on the Premium Segment of the Main Market since 2021 (the only equity-focused investment company listing since 2018). Post period-end, the £37 million market cap proposed a tie-up with the much larger Asia Dragon Trust (DGN). AWEM ‘intends to participate’ in a full strategic review subsequently launched by DGN. Begs the question, what will AWEM get up to in its second year?

Winterflood: ‘Stock selection contributed to relative performance, particularly within SME segment. India overweight was key geographic contributor.’

NextEnergy Solar Fund’s (NESF) ten-year anniversary

NESF’s tenth full-year results included some major milestones: net operating capacity hit 1GW; the number of operating assets passed 100; the capital recycling programme saw a 60MW ready-to-build solar project sold for £15.2m, a 100% premium to the holding value. And according to CEO Michael Bonte-Friedheim, the 11% dividend yield is ‘one of the highest in the sector and FTSE 350’. Total dividends paid since the April 2014 IPO now stand at £345m. One blot on the report card, NAV per share dropped to 104.7p from 114.3p a year ago due, in part, to lower UK power price forecasts.

Jefferies: ‘NESF has announced a £20m share buyback programme. This is helpful given the weakness in the shares so far during calendar 2024, although material extensions of the programme are unlikely while the fund is still repaying its RCFs.’

Numis: ‘Further progress on disposals would be welcomed and remains an important driver for share price improvement. The forthcoming discontinuation vote at the AGM in August will be a key event for assessing the market’s appetite for the long-term prospects of the business.’

Personal Assets (PNL) remaining cautious

PNL’s ‘investment policy is to protect and increase (in that order) the value of shareholders’ funds per share over the long term’. And it’s done just that. According to Chairman Iain Ferguson, since 1990, ‘NAV has grown at an annual compound rate of +6.5% compared to +3.4% for the UK Retail Price Index and +4.3% for the FTSE All-Share Index, our two main comparators.’ As for the latest financial year, NAV grew +1.2%, compared to the FTSE All-Share’s +3.4%. The investment manager thinks ‘Grounds for caution remain. This is a time for patience and prudence, not ebullience.’

Numis: ‘We continue to believe that Personal Assets is an attractive long-term vehicle for cautious investors.’

Cordiant Digital Infrastructure (CORD) exceeding expectations

CORD’s +9.3% full-year total return came in ahead of the 9% target. So too, the annualised NAV total return which, at +10.5%, exceeds expectations set at the time of the IPO. Total dividends for the year were also ahead of guidance, up 5.0% to 4.2p. What’s behind the forecast-busting numbers? Strong overall performance at the portfolio-company level: aggregate EBITDA grew 7.2% year-on-year to £139.3 million. Everything seemingly going in the right direction, apart from the share price which languishes at a hefty discount to net assets. Chair Shonaid Jemmett-Page ‘believes the causes are macroeconomic rather than specific to the Company’.

Investec: ‘We believe that the diversified and highly contracted nature of the revenue streams, combined with high EBITDA margins underpins future NAV growth. Combined with an attractive yield (5.8%), we believe that the shares offer a compelling total return proposition and we reiterate our Buy recommendation.’

Jefferies: ‘The twin portfolio pillars of Emitel and CRA continue to drive aggregate earnings growth and the overall valuation/NAV. Here the recycle of the cash flow back into the portfolio bodes for ongoing growth.’

Liberum: ‘These results reinforce our view that the market has been undervaluing CORD’s performance. We rate CORD as BUY with a 120p TP.’

Numis: ‘We believe the share price discount of 36% is an opportune entry point and undervalues the potential of the portfolio.’

JPMorgan European Discovery Trust’s (JEDT) year of two halves

JEDT’s full-year results were boosted by a second half pick-up in performance: NAV per share was up 4.5% for the year to 31 March 2024, but up +19.8% from 30 September 2023 to 31 March 2024. The +6.8% total return on net assets also beat the MSCI Europe (ex UK) Small Cap Index’s (GBP) +5.9%. Chairman Marc van Gelder’s appears to have included a weather forecast in his statement ‘The outlook for European small cap companies seems considerably brighter than when I wrote my last statement to shareholders for the Half Year Report six months ago.’ All set fair then?

Numis: ‘Within its annual results, the Board has committed to return up to 15% of share capital via a tender offer at a 2% discount to NAV. It is unsurprising to see some proposals put forward ahead of the continuation vote at the upcoming AGM in July’.

Henderson Opportunities (HOT) set for a HOT streak?

HOT’s +18.6% NAV total return for the half year trumped the FTSE All-Share’s +14.2%. The Interim Management Report puts the outperformance down to stock selection and the benefits of gearing. The Report points out that ‘This was a welcome recovery in both absolute and relative terms, although we recognise that on a long-term basis performance remains disappointing and therefore we need this trajectory to continue.’

Winterflood: ‘Performance drivers were recovery in smaller company share prices from oversold levels as well as ‘recovery’ shares.’

Syncona (SYNC) eyes up £5billion

SYNC’s +1.2% NAV per share return for the year was down to ‘Positive returns from our life science portfolio and capital pool, enhanced by accretive share buybacks.’ CEO Chris Hollowood described the performance as ‘resilient’. He also reminded readers of the healthcare investor’s ‘ambition to organically grow net assets to £5 billion.’ Progress is being made ‘Our maturing strategic portfolio of 13 companies expects to deliver eight key value inflection points with the potential to drive significant NAV growth by the end of 2026, including two in the next six months.’ Code for watch this space

Jefferies: ‘The portfolio’s shift towards later-stage assets has become a lot more apparent. Looking forward, this should provide additional flexibility to make shareholder distributions from the capital pool, and also potentially accelerate near-term NAV performance.’

JLEN Environmental Assets’ (JLEN) resilience

JLENmarked its 10th anniversary as a listed company with a -1.6% NAV total return for the year. Chair Ed Warner believes ‘this year’s performance is another demonstration of our resilience, despite it being a challenging year for the listed renewable investment company sector.’ Warner hopes’ JLEN’s excellent record of delivering consecutive dividend growth since the Company’s launch in 2014, combined with the exciting prospects for the broad range of technologies and assets that it invests in, will encourage all shareholders to vote ‘against’ the discontinuation resolution put forward at the AGM.’ Question is, will that be enough for shareholders?

Jefferies: ‘Dividend cover remains strong, but the most pertinent takeaway is that an asset sale is expected over the coming months. This is particularly positive in the context of the very limited disposal activity to date, the material RCF balance still to repay, and the lack of share buybacks.’

Liberum: ‘we view greater income and NAV growth potential for the portfolio than for lower-risk solar peers and maintain our BUY rating.’

JPMorgan Japan Small Cap Growth & Income (JSGI) believes growth will out

JSGI’s +5% total return on net assets for the year, some way off the MSCI Japan Small Cap Net Return Index’s (sterling) +12.0%. A better reflection of the company’s portfolio is the MSCI Small Cap Growth Index which was up +6.6%. That’s because JSGI has ‘a bias towards smaller cap, quality, growth names’. Chair Alexa Henderson ‘shares the Portfolio Managers’ conviction that good quality companies with strong growth prospects will always perform well over the longer term.’ Henderson has the numbers on her side: the fund’s annualised return on net assets of +8.0% over the ten years ended 31st March 2024, not far off the benchmark’s 8.5%.

Winterflood: ‘Underperformance partly attributed to fund’s bias towards smaller cap, quality, growth names, whereas market favoured larger, lower-quality value-oriented stocks.’