How to target a £60,000 second income with a brand-new investment portfolio© Provided by The Motley Fool
by Zaven Boyrazian, MSc
So with that in mind, let’s explore some best practices for income investing and how to aim for a £60k long-term portfolio income stream.
Compounding dividends
Across the UK, the average household is able to save roughly £450 a month. Suppose that money is allocated to a FTSE 100 index fund today. In this scenario, investors can expect to earn between 6% and 8% a year moving forward, based on the historical performance of the UK’s flagship index.
Around half of these gains stem from dividends. And at a 4% yield, each £450 monthly investment would unlock roughly £18 of annual passive income. Needless to say, that’s not exactly a life-changing sum. But that quickly changes once compounding enters the picture.
Earning £60,000
Having an extra 26 grand in the bank each year is certainly nothing to scoff at. But by being shrewd and taking on a bit more risk, it’s possible to more than double this second income.
Instead of mimicking market returns with an index fund, investors can take their income portfolio into their own hands. The London Stock Exchange is filled with dividend shares offering yields significantly higher than 4%.
Suppose a portfolio of these enterprises delivers a 6% yield while still delivering another 4% in capital gains? In that case, after 30 years of £450 monthly deposits, a portfolio would reach into the seven-figure territory, generating £60,000 of dividends each year.
Taking a step back
Earning almost twice the average national salary without having to lift a finger is an undeniably awesome prospect. But it’s important to realise that none of it is guaranteed.
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