From acorns

The Motley Fool
I’m not going to sugar coat it.

Building a lifelong passive income strategy is not easy. If you really want to retire comfortably you’ll have to put in the work — and the money — to make it happen.

Shortcuts and get-rich-quick schemes seldom work.

As the saying goes, ‘Money doesn’t grow on trees’. However, it can grow in a portfolio of high-yield dividend shares with compounding returns.

With that said, a three-step strategy to building a passive income stream to retire in style.

Step 1: Open a Stocks and Shares ISA
You don’t need a Stocks and Shares ISA to begin investing but it’ll certainly make my money go further.

See, with a Stocks and Shares ISA, I can invest up to £20,000 a year tax-free.

Depending on my returns, the ISA fees are likely to pale in comparison to the amount the tax break saves me. There are several options available for UK citizens to open a Stocks and Shares ISA and start investing today.
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.

Step 2: Invest in a portfolio of high-yield dividend shares
So what shares should I put in my ISA?

While it might seem attractive, it’s usually best to avoid ‘flavour of the month’ shares like booming tech stocks. These might bring short-term gains but usually lack resilience and seldom pay dividends.

Well-established companies that pay high-yield dividends offer more consistent returns even when markets are stagnant.

It’s important I create a diversified portfolio of shares, so I’d add some companies with lower dividends but a more stable share price. I could also add some ETFs to offset unexpected market volatility.

Step 3: Reinvest dividends and contribute further
For the final step, it’s important to ensure I benefit from the magic of compound returns. Using a dividend reinvestment plan (DRIP), I would reinvest my dividends and maximise the value of my investment.

More importantly, I should continue to make some monthly contributions to my investment. Even just a few hundred pounds a month can make a real difference in the long term.

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If u are investing small sums, u do not need to pay for an ISA until u use up your tax free entitlements, which might change with the next government. With a small but growing account it would be better to use an ISA provider who charges a percentage of your portfolio rather than a fixed fee.