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 How to turn a £20k Stocks and Shares ISA into a second income over time

How to turn a £20k Stocks and Shares ISA into a second income over time

Andrew Mackie looks at how time and compounding can turn a stocks and shares ISA into a meaningful second income.

Posted by Andrew Mackie

Published 24 May, 7:53 am BST

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

A Stocks and Shares ISA is not a shortcut to instant passive income — it’s a long-term compounding vehicle.

That matters because many investors focus on what a £20,000 portfolio can generate today, when the real opportunity lies in how that figure can grow through disciplined investing over time.

Used properly, a Stocks and Shares ISA can become the foundation of a second income stream — but only if investors understand how compounding, dividends, and reinvestment work together.

Compounding effect

When building a Stocks and Shares ISA, it’s easy to focus on how much is invested. But the chart below shows something more important than contribution levels or return assumptions.

It compares two investors using the same 8% return over 20 years. One invests a £20,000 lump sum at the start. The other invests £1,000 a year for 20 years.

The outcome is driven by one factor: time.

Money invested earlier has longer to compound. That compounding builds on itself year after year, and the gap widens simply because one portfolio starts working sooner.

This is the core point the chart is designed to show. Not the exact contribution method. Not the precise return assumption. But the effect of time.

Everything else investors tend to focus on — timing, structure, even total contributions — becomes secondary to that simple reality.

The longer money is invested, the more powerful compounding becomes. That’s what drives the difference in outcomes.

Chart created by author

Quality compounder

One business that fits this idea of long-term consistency and compounding is RELX (LSE: REL).

At first glance, recent weakness in the share price reflects concerns that AI could disrupt its legal, scientific, and risk analytics businesses. On the surface, that sounds like a credible threat — particularly in areas like legal research, where large language models are improving rapidly.

However, the business is not built around static content or easily replaceable information. Its strength lies in proprietary datasets built up over decades — particularly in legal and risk markets where precedent, accuracy, and verification matter as much as raw information.

In law especially, AI tools may improve access to information, but they don’t remove the value of structured, validated, and continuously updated legal databases. If anything, the demand for trusted data becomes more important as AI-generated outputs increase in volume.

That’s why RELX has been integrating AI into its own platforms rather than resisting it. Across its divisions, it is using machine learning tools to improve workflow efficiency for lawyers, insurers, researchers, and risk professionals — all within its existing subscription ecosystem.

This creates a different type of investment profile. Growth is not driven by cycles or one-off wins, but by steady subscription renewals and incremental expansion over time.

What could go wrong

The main risk is not sudden disruption, but slower structural growth if AI meaningfully reduces demand for human-led professional services.

Even so, the attraction for me lies in consistency. RELX has demonstrated an ability to compound earnings through multiple cycles, without relying on aggressive assumptions.

The chart earlier illustrates how powerful time can be when compounding is allowed to work uninterrupted. To me, the same principle applies to investing itself. Quality businesses such as RELX are built around long-term consistency rather than short-term excitement — and that is often where lasting wealth creation begins.