Building a substantial passive income can be hard work. While I dream of retiring and living off my UK shares, it isn’t an easy objective to achieve.
Savings discipline
Before I start building a substantial passive income I need to have some money to invest in the first place. I think the foundation of my investment dream comes from savings discipline.
When I calculate my potential passive income in the future, one of the biggest factors is how much I have to invest on a regular basis. For instance, if I assume a 7% annual return and invested £20 each week, I could have a portfolio worth £105,628 in 30 years’ time.
Let’s change that to £100 per week invested. With that same rate of return and timeline, I could instead be sitting on £528,139 worth of investments in 30 years. That’s a huge difference that’s driven by savings discipline and sticking to my goals for the long run.
Dividend shares
Another big factor in achieving my passive income dreams is the investments themselves. I believe in a Foolish long-term perspective and am always looking for strong UK shares that tick my boxes.
Of course, there’s uncertainty with dividends. Companies do change dividend policies and that’s almost guaranteed over my long-term time horizon. However, there are some s with tasty dividend yields on offer.
Take the likes of Legal & General (LSE: LGEN). This is a blue-chip insurer and asset manager in the FTSE 100 with a £13bn market cap and 9.3% dividend yield right now.
The company has strong brand awareness (we all know the coloured umbrella) and the potential to grow its total assets in the lucrative UK retirement policy market. I think it’s certainly one for dividend-hungry investors to consider if it can maintain that yield.
While Legal & General isn’t top of my buy list, it does show there are some serious dividend payers on the market that can help me achieve my dream. Ultimately, investing in a portfolio of dividend shares that can regularly deliver me a passive income stream is the goal for me.
Diversification
Diversification is the final piece of my puzzle. I don’t want to put all of my passive income hopes and dreams in the hands of one stock.
For me, a shares portfolio that can deliver a steady yield through the cycle is the key to achieving my long-term dream. A good mix of stocks that can weather a recession and are leaders in a variety of industries could help me achieve my goals.
The post 3 crucial factors for building my passive income appeared first on The Motley Fool UK.
(“SEEIT” or the “Company”) Interim Dividend Declaration
SDCL Energy Efficiency Income Trust plc is pleased to announce the second quarterly interim dividend in respect of the year ending 31 March 2025 of 1.58 pence per Ordinary Share, covered by net operational cash received from investments.
The shares will go ex-dividend on 12 December 2024 and the dividend will be paid on 31 December 2024 to shareholders on the register as at the close of business on 13 December 2024.
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
While anyone who needs a normal amount of sleep couldn’t possibly have read all the articles and listened to all the podcasts pre- and post- the US election, the ones this analyst has consumed seem to fit into some broad categories. First there are the ideological, for or against and we don’t really need to explore the polarization between those two groups. Then there are the practical, which look at what some of the proposed policies for the new administration might mean. A tiny number of commentators have managed to be even-handed, but it seems to have been a very difficult thing to pull off.
A recurring theme in all categories of commentary is that this is likely to be a ‘transactional’ administration. But there seems to be little exploration of what that could mean in practice. Thus, we might be given an analysis of what a 20% tariff on goods from Europe might mean for both sides, because that seems helpful and practical. But will a transactional approach just involve ‘we told you what we were going to do, now we’re doing it’? Maybe it will, but maybe, just maybe, it won’t. Ten years ago, only three NATO countries, the US, UK and Greece, were spending more than 2% of GDP on defence, Today, 23 members have met that target, and it seems uncontroversial to say that President Trump’s plain speaking transactional approach to the issue has been a significant reason behind that. The next weeks and months will show whether it was enough to hold the alliance together, but it’s clear that everyone in the room finally understood there was a transaction on the table.
Bringing things home for a moment, the UK has, by any rational analysis, been a post-industrial economy for a long time now, and yet the idea of making things in factories evokes a powerful emotional response in many people, including me. Governments know this and spend far more time thinking about factory openings and closings than the raw economic numbers say they should do, and they are helped by the popular press in doing so. Maybe we should leave some room then for thinking that in the US, which is also overwhelmingly a service-led economy but with a much more meaningful industrial base than the UK, a popular outcome might be if tariffs result in companies deciding it would be better to make some of their stuff in the US. Is there a value to that? Maybe the cold economic analysis says ‘not really’ but maybe there is a value to the people on the ground who voted in the election, and I think we need to leave a space in our thinking for the idea that ‘value’ can’t all be measured by conventional economics. This, of course, isn’t the only subject of the recent election, but perhaps it’s a start towards getting inside the heads of the negotiators.
Let’s look at some sectors, regions and trusts and what we think the implications of the new administration could be for them. There are some broad positive themes and some more idiosyncratic ideas that might help an investor who wants to ‘wait and see’.
Healthcare
This sector has already shown significant post-election gains. The US of course looms large in any discussion of healthcare, and as the managers of Worldwide Healthcare (WWH) laid out in a recent presentation, the sector invariably does better under the GOP. They also noted that while pharmaceutical pricing was a big focus of the 2022 Inflation Reduction Act, many of the rounds of price negotiation mandated under that legislation will occur under the new administration, and the market has already begun to anticipate a negotiation that may be a little more favourable to the pharmaceutical companies. International Biotechnology’s (IBT) team anticipate that a period of stagnation ahead of the election will come to an end, and expect M&A activity, a significant source of returns over the years for the trust, to pick up as large pharmaceutical companies wrestle with patent expiries and seek new products and IP. The trust holds a basket of stocks the managers expect will benefit from this. Both trusts have already seen significant jumps in value, with the respective teams both believing this could be the start of a long positive run for healthcare. Balancing that optimism, we note that the proposed appointee to the health secretary role, RFK Jr., is a controversial choice and if confirmed could introduce uncertainty into the sector.
US
A pro-business administration that cuts corporation tax seems likely to be positive for US equities generally, but investors who nevertheless worry about high valuations in certain parts of the US market could consider JPMorgan American (JAM) who blends value and growth opportunities into a single portfolio. This strategy has a track record of negotiating different market conditions and we think investors should see it as a core exposure to the world’s largest stock market.
One topic we’ve focused on for some time is the low average valuation of US smaller companies. The two specialists in this area, Brown Advisory US Smaller Companies (BASC) and JPMorgan US Smaller Companies (JUSC) have both majored o this over the last two years, noting that falling inflation and interest rates are typically the signal for smaller companies to outperform. Investors have remained relatively immune to this argument but with the election of a pro-business administration likely to cut corporation tax both trusts have seen very strong price and NAV reactions.
Finally, while renewables might not be top of everyone’s shopping list in the US right now, SDCL Energy Efficiency Income (SEIT) has a significant proportion of its assets allocated to US industrial operations, providing services such as on-site power generation using gas turbines and renewable sources, including operations on the iconic industrial site in Massachusetts founded by the Eastman Kodak company, now home to over 100 industrial companies. A fall in corporation tax could be very positive for this trust’s assets, none of which rely on any subsidy, and you can register to receive our forthcoming note here. the managers of BlackRock Energy and Resources Income (BERI), who can invest in traditional energy or energy transition-related stocks, have been adding to some of the latter on the election-fuelled sell-off, believing the market is over-reacting. They point out a lot of renewable energy projects are in red states and create lots of jobs. Similarly, VH Global Sustainable Energy Opportunities’ (GSEO) largest asset, c. 40% of NAV, is a fuel storage facility on the east coast of the US, with room to double capacity. This again could be a beneficiary of the change of administration, and again which doesn’t rely on any subsidies.
UK
With the UK’s relationship with the US a constant topic of anxiety for our politicians and press, it would be easy to overcomplicate things here. One might say this is our big moment, post 2016, to claim the prize of a freewheeling global trading nation where we can pick the economic winner to team up with. While there has been some unofficial talk in the US of the UK being spared from tariffs proposed for the rest of Europe, it’s probably not wise at this stage to position for this.
In our view the biggest opportunities in UK equities right now allow investors to take a ‘wait and see approach’. UK equities are undervalued, notably smaller companies, and this is attracting international capital and M&A activity that has already led to positive momentum. One of the best ways to sidestep thinking about how the UK might perform in any negotiation is to focus on trusts generating idiosyncratic returns such as Rockwood Strategic (RKW) which is making hay from a mixture of those low valuations and an intense focus on engaging directly with smaller UK companies. Aberforth Smaller Companies (ASL) off some of the same potential in a broader small-cap focused value-orientated portfolio.
Europe
Europe’s key strength in any negotiation is that it is home to companies that are important to the US and in many cases have manufacturing facilities in the US. For example, Novo Nordisk, the largest company in the index counts the US as its largest market and has manufactured its products in North Carolina for 30 years. The managers of both BlackRock Greater Europe (BRGE) and European Opportunities (EOT) r noted that Novo’s flagship product sits in an incredibly important category where voters will be keen to see price competition, with only one other significant participant, Eli Lilley. The same point about local manufacturing is true for other companies from Europe and elsewhere, and so one can see how an active fund manager might find opportunities to exploit the situation.
Like the UK though, investors who wish to take a ‘wait and see’ approach could focus on more idiosyncratic returns, such as those generated by European Smaller Companies (ESCT). L the UK, European smaller companies are on average at low valuations, and ESCT’s manager has generated impressive returns in spite of low investor sentiment to Europe, finding companies that can thrive even when economics look less favourable.
Emerging Markets
Given the ‘60% tariffs’ being discussed in relation to China, this is the elephant in the room for investors. Again, the answer for investors wishing to wait and see could come from more idiosyncratic returns, and Fidelity Emerging Markets (FEML) is able to take long and short positions and take market direction out of the equation if it wishes. This approach has proved very relevant even before the US election, with FEML for example able to navigate the Chinese real estate market through pairs trading and other strategies. Trusts such as BlackRock Frontiers (BRFI) and BlackRock Latin American (BRLA) offer alternative emerging markets exposure that sidesteps China, although we think a ‘wait and see’ on Mexico, a key market for BRLA would be sensible, and Vietnam, which investors can access through Vietnam Enterprise Investments (VEIL), an economy that has benefitted from many companies’ efforts to move production from China.
Gold
It’s quite likely though, for all those neat scenarios above, that markets will have divergent views and investors will look for ways to protect against inflation and as a general hedge against an aggressive approach to geopolitics. Gold had a strong run in the approach to the election, investors perhaps seeking some protection against a less decisive election, but it has fallen back since and could prove a useful portfolio tool in an uncertain world. One way to access it is through Golden Prospect Precious Metals (GPM), which gives investors a neat way to get exposure to the mining companies that benefit most from a rise in the gold price, with c. 80% of the portfolio invested in gold miners that offer, in effect, a geared exposure to the gold price.
Conclusion
In some instances, ‘wait and see’ is going to be the best thing to do. Markets genuinely don’t like uncertainty, and a decisive election has created uncertainties for various regions of the world. Equity investors already know, though, that de-globalisation has been underway for some time, exacerbated by supply chain shocks in the pandemic and shifts in geopolitics, so we don’t think the next four years is the sudden change in direction it is being portrayed as, even if the negotiating style is a bit more direct. Going back to our reference to NATO, this has been a recurring theme among US presidents, with the last two Democrats taking a similar, but less direct, line. So many companies will take this in their stride and see it as an acceleration towards where they were already heading. All of which could be very positive for investors who keep their nerve.
I know this if off topic but I’m looking into starting my own blog and was curious what all is needed to get set up? I’m assuming having a blog like yours would cost a pretty penny? I’m not very web savvy so I’m not 100 positive. Any tips or advice would be greatly appreciated. Kudos.
££££££££££££
The web host is Word Press and the charge for the domain name is roughly twenty pounds p.a.
I access by Fast Hosts, current charge £7.20 per month although it was discounted for the first six months. If u can cut and paste and snip and sketch fairly straightforward. GL
The number of investment companies trading at year-high discounts to net assets almost doubled to 18 week ended Friday 22 November 2024. The two themes observed in recent weeks – rising gilt yields affecting alternative assets funds; and Trump’s victory in the US election impacting funds investing in emerging markets – still in evidence.
ByFrank Buhagiar 25 Nov
We estimate 18 investment companies saw their share prices trade at 52-week high discounts to net assets over the course of the week ended Friday 22 November 2024 – eight more than the previous week’s 10.
Two themes highlighted in recent Discount Watches still very much in evidence during Week 47 of the year.
Funds from the alternative assets space continue to feature prominently among the 52-week high discounters. Eight out of the 18 funds were alternatives. Concerns over government spending and borrowing have seen 10-year gilt yields spike up to as high as 4.5% from the 3.75% seen in September. Higher yields can lead to higher discount rates. Higher discount rates used to value alternative assets can result in lower fund valuations. Having said that, the number of alternative year-high discounters in Week 47 matched the previous week’s eight – a sign the gilt yield theme is waning or just taking a breather?
Widening discounts in the emerging/frontier markets sector reflect fears that Donald Trump’s victory in the US election is bad news for developing nations’ economies due to the prospect of a stronger dollar, higher US inflation/interest rates and higher tariffs on imports into the US. This week, three funds investing in developing , Utilico Emerging Markets (UEM), Vietnam Enterprise (VEIL) and VinaCapital Vietnam Opportunities (VOF) feature in the Disco Watch. No surprise two of these are Vietnam-focused as the country is among the largest exporters to the US and therefore potentially has much to lose.
As for the remaining seven funds on the list, these come from a random walk of sectors – healthcare, equity income (global and UK), environmental, North America and flexible.
If you’re looking for a way to generate some extra cash, then you might like the idea of earning some “passive income”.
Here, Telegraph Money explains what passive income is and gives some examples of how you could make it.
What is passive income?
How to make passive income
Five passive income ideas
Passive vs active income
Passive income FAQs
What is passive income?
Passive income refers to a source of money you earn that you don’t have to actively work for. That’s not to say that you won’t need to put in some serious time and effort in the beginning to set it up, but once that’s done it should continue to provide you with an income that’s separate from your job.
Megan Rimmer, chartered financial planner at Quilter Cheviot, said: “Passive income refers to earnings generated from sources that require minimal involvement once they’re set up.”
Traditionally, there have been a handful of options for generating passive income, notably property and investment.
These are still popular but tend to require you to put up more money to start things off
More recently, all sorts of people from different age groups and income groups are coming up with increasingly creative ways of making passive income.
How to make passive income
While a passive income stream can be pretty easy once it’s set up, it does require a lot of planning and preparation beforehand.
You could well have more than one source of passive income, but you’ll need to have a think about which methods will suit you and bring in enough money to be worth the initial effort.
Here are some things you’ll need to consider first:
Be prepared to put in effort and capital upfront: Whether you’re planning to invest in a property or set up a side hustle, passive income requires input at the start.
Be willing to accept risk: Given the effort and capital required, there’s no guarantee the income you’ll receive (if any) will be enough to outweigh what you put in.
Have other sources of income: Making sure you’re not dependent on passive income will help mitigate the risk while you’re setting it up – so, continue with your job, or make sure the set-up costs don’t take up too much of your pension, for example.
Consider your personal circumstances: Remember, the right passive income approach for you will depend on your timescales, personal circumstances and risk appetite.
Five passive income ideas
There are lots of options for making passive income – some will depend on how comfortable you are, or whether you have a creative talent that people might pay for.
Here, we detail some of the ways to make passive income that could be considered by almost anyone.
1. Investing in stocks and funds
This tax efficiency has grown even more important given the announcement in the recent Budget of a reduction in the capital gains tax allowance.
Ms Rimmer said: “This highlights the benefits of an Isa for those seeking to grow passive income without being taxed heavily.”
You just need to bear in mind that investments also carry their own risks and are subject to fluctuations. This underlines the importance of having a diversified portfolio.
2. Prioritise dividend-paying stocks
More specifically, look into putting a lump sum into stocks or funds that pay a dividend. This is a distribution of earnings to shareholders from the company they’re invested in, which tend to be paid quarterly – and you can usually choose to receive it in cash. If you choose to do this, you won’t benefit from the compound interest of other investing income, but it is an easy way to arrange a regular source of income.
Unless the investments are held in an Isa, you’ll pay tax on dividend income above £500 in 2024-25.
Investing in property was once a popular way to generate passive income through buy-to-let arrangements. However, recent tax and regulatory changes mean it’s not so easy to make big profits – including the removal of mortgage interest relief and the 5pc stamp duty surcharge on second homes.
Ms Rimmer said: “Such moves have made it much harder to turn a profit in this space. While some landlords may still succeed, it’s now a much riskier and more complex path.”
If you don’t have a second home, but do have spare room, taking in a lodger is another option. Under current rules, you can earn up to £7,500 a year letting a furnished room without having to pay tax on it. This is thanks to the “rent-a-room” scheme.
If you earn more than this, you are required to complete a tax return.
You might also choose to rent out your parking space or any other space for storage. Note that you get up to £1,000 each year in tax-free allowances for property income.
4. REITs
If you’re not keen on investing in a physical property, a real estate investment trust, or REIT, might be a better way to capitalise on the sector.
REITs are closed-ended funds, which have a fixed pool of capital that is not affected by investors buying and selling. This protects them from the issue of “liquidity mismatch”, when managers are unable to fulfil redemptions if investors rush to cash out – as was seen during the Covid pandemic.
5. Savings interest
Simple as it sounds, earning interest on savings is a form of passive income.
The key here is to look around for the highest rates you can find, as this will mean you’re making the most of your hard-earned cash.
To keep a stream of money coming in, you could set up a “bond ladder”. This involves splitting up your savings into several groups and depositing each one into a bond that is due to mature at a slightly different time – you could split them out to give yourself a payout once a year, or more often if you’re willing to keep track of lots of accounts.
When each bond matures, you can “pay yourself” the savings interest, and then re-invest the money into a different account, and so on.
Passive vs active income
Passive income is defined as income derived from a source which you play no role – or only a very minimal role – in obtaining.
David Hunter, wealth planner at Succession Wealth, said: “It can be further characterised by its flexibility because it does not require active participation, allowing you additional freedom.”
This contrasts with active income, which needs ongoing time and effort.
Mr Hunter said: “This involves you playing a more pivotal role – such as employment or self-employment. The main difference being that if you were to stop the activity, the income would also likely stop.”
Passive income FAQs
Can you make a living out of passive income?
Yes, you can – and lots of people do.
Many people in Britain live a life that is entirely funded by passive income streams.
But be under no illusion. Almost every venture requires a huge level of work and effort to get going.
You only get to reap the rewards and collect income “passively” a lot further down the line, so don’t be too hasty about throwing in the towel on the day job.
A sensible approach is to start your passive income venture as a side hustle. That way, you’ll have the security of a regular income while you work out whether you can get it off the ground.
Is it hard to make passive income?
While passive income can provide financial freedom by de-linking earnings from hours worked, it’s rarely as simple as it sounds.
Creating meaningful returns generally requires upfront effort, capital and a willingness to accept risk – especially with avenues such as property and stock markets, as both can fluctuate.
Ms Rimmer said: “In this respect, building passive income often requires a carefully planned approach that accounts for risk – and aligns with long-term financial goals.”
You also need to tread very carefully online.
Jason Witcombe, chartered financial planner at Empower Partners, said: “As passive income can be presented as trying to generate ‘money for nothing’, it’s no surprise that the internet is full of advice on passive income ‘side hustles’ or ‘get-rich-quick’ schemes. Just be careful who you believe, otherwise you could find yourself being someone else’s passive income.”
What passive income makes the most money?
Sadly there is no simple answer to this.
Mr Witcombe said: “There are ‘infinite’ ways you can generate a passive income – so it’s impossible to say which is ‘best’.”
The most sensible approach is to research the various ideas carefully to see which ones might work well for you. Always go in with your eyes open, fully aware not only of the rewards on offer – but also of the potential risks involved.
Don’t base your decision on what has worked for other people – you need to consider your own situation.
Not naval gazing, that’s a different topic altogether.
2025
The current dividends pencilled in for the next calendar year is £9,004.00, subject to change. Below the fcast of £9,120.00 but as the earned dividends are re-invested the fcast should be met. But remember there is a lot of water to flow under a lot of bridges before the end of 2025. GL
