Earning passive income from the stock market is plagued with myths. These 3 are busted!

These three bits of nonsense are often trotted out to investors aiming for passive income from an ISA. Now they’re all squashed.

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Alan Oscroft

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.

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Passive income from stocks and shares sounds great, right? But so many naysayers trot out all the reasons why it will only ever be a pipe dream.

I can’t cover all their claims. But today I want to stomp on a few common ones.

Myth 1: It takes a lot of money

Some passive income ideas might indeed cost big money to set up. Rental real estate is a common one, but that means having enough cash for a property or taking out a big mortgage. Actually, even that might not be true, and I’ll come back to it.

The stock market’s just for well-healed investors, yes ? Well, no. I’ve just done a quick online search. And I see with a Stocks and Shares ISA from AJ Bell, we can invest as little as £25 monthly or make a one-off £250 transfer. That’s not unusual and it’s not a recommendation, it’s just the very first one I found.

Other ISA platforms are similar. As well as costing very little to get started, they’re easy to open. The more we can invest, the better we’re likely to do. But we really can start with modest amounts of money.

Myth 2: It’s very risky

The thought of putting our money into a company that goes bust is scary. It can happen, but we can greatly reduce the risk.

All we need to do is consider shares in a stock market tracker, like the iShares Core FTSE 100 UCITS ETF

Myth 3: It takes talent
Stock market investing has long been shrouded in mystery. We have to understand all sorts of big words and do complicated financial sums to have a clue, don’t we? Well, that myth has also been shattered these days. I think it’s pretty clear that investing in a simple tracker fund doesn’t require egg-head brains.

Considering investment trusts, which spread out cash using specified strategies is a common next move. Want income from UK dividend stocks? Look for one that does that. No genius required. Oh, remember that thing about real estate income? There are investment trusts that do that too.

And there’s a bonus — the more we widen our investing horizons, the smarter we can get at it.