New to investing? I’d follow these 5 steps to target a £20,628 yearly second income

Story by John Fieldsend

The Motley Fool

I remember when I was new to investing. I had no idea where to start or what to do. I put it off for ages. My dithering cost me tens of thousands, looking back. That’s money I could have put towards building a second income.

How I’d target that £20k+
I wish someone had told me to just get started. Once someone starts investing, the money (hopefully) starts to compound and grow. “Time in the market”, as they call it. The longer I wait without investing, the more it costs me.

If I started today, I’d follow these steps for a healthy passive income. I could even target £20,628 a year. Here’s how, step by step.

My first step is a simple one. I need to open an account. One thing we do right in the UK is our ISA accounts. These ISAs – individual savings accounts – are perfect for investing in stocks. Why? Because they offer amazing tax advantages.
Why I need to invest
If I invest in a Stocks and Shares ISA, I avoid both dividend tax and capital gains tax. I can deposit up to £20k a year and avoid these taxes. Sadly, that’s around £1,667 a month. I doubt many of us have that much left at the end of the month, but any amount is worthwhile.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Once I’ve got my account, my second step is to put some money in.

But it’s clear the savings don’t amount to very much on their own.

So the next step is to invest. What kind of return could I expect from this? Well, the next table shows a few ideas.

I’d aim for a £500k net worth

The FTSE 100 and FTSE 250 are both in the UK and make up the top 350 listed companies here. The S&P 500 is the closest equivalent in the States. The MSCI World Index is another. This one is like a worldwide average for stocks. All have historically offered decent returns.

And remember, I’d look to start as soon as possible. I want this compounding to work for me straight away. This is how I could make the big money.

Next comes my fourth step. Here I’d let my investments grow. Let’s look at what a flat 10% does.

Those percentages might look small, but they add up. And the returns compound, with the amount possibly getting very big over time. The next graph shows what that looks like.

New to investing? I’d follow these 5 steps to target a £20,628 yearly second income

And remember, I’d look to start as soon as possible. I want this compounding to work for me straight away. This is how I could make the big money.

Okay, now we’re cooking with gas. These returns look very impressive. But I’m after a second income here, so how do I get it?

One important risk
Well, with stocks I have two options. I can sell off part of my portfolio. I withdraw that and it’s my income. The other way is to invest in stocks that pay dividends. These payments go straight into my account from a company’s coffers.

With either method, a 4% return is usually considered a safe amount to withdraw without depleting my nest egg. Here’s what that would look like for the above values.

Looks good to me! Although I’ll end on a cautious note.

I’m looking at past returns here as that’s all anyone’s got to go on. But the future is unpredictable. Stocks might not be as lucrative as they were in the past. This is a risk all investors must be wary of.

Buy dividend Trusts based on their yield and their history of paying gently increasing dividends.

A 7% yield compounded at 7% doubles your money in ten years.

Get Rich Slow.

KISS

The Motley Fool

No savings? I’d use these 4 Warren Buffett tips to build significant wealth

Story by James Beard

According to Forbes, Warren Buffett is the fourth-richest person on the planet, with an estimated fortune of $121bn. Unlike the three ahead of him — Messrs Musk,Bezos , and Ellison — he’s built his wealth primarily from investing.

1. Start early

The first thing I’d have to do is begin investing as early as possible. Buffett bought his first stock when he was 11. He’s still investing 82 years later.

The longer the investment horizon, the more time there is for wealth to grow. And delaying a few years can make a big difference.

The table below shows how much £100 invested today could be worth over different periods. The figures assume an annual growth rate of 7.4% — the average yearly return (with dividends reinvested) of the FTSE 100, from 1984 to 2022.

2. Reinvest those dividends

By withdrawing dividends, the FTSE 100 would have delivered growth of ‘only’ 5.3%. With this lower rate, £10 would have been worth £789 after 40 years — over 50% less.

This demonstrates the power of compounding, which has been described as the eighth wonder of the word.

Berkshire Hathaway, Buffett’s own investment company, doesn’t pay dividends. Instead, it reinvests the cash it saves by buying more shares.

This has helped its stock achieve a compound annual growth rate of 19.8%, since 1964. A sum of £1 invested then, would now be worth over £3.7m

That’s why — as tempting as it might be to spend dividends on a one-off treat — I always reinvest them.

3. Don’t put all your eggs in one basket

Most investors emphasise the advantages of diversification — spreading risk across a number of stocks.

However, Buffett once said: “A lot of great fortunes in the world have been made by owning a single wonderful business. If you understand the business, you don’t need to own very many of them“.

Some have interpreted this as meaning that he doesn’t believe in owning lots of individual shares.

In 1993, the billionaire said the “know-nothing” investor is likely to out-perform the average fund manager by investing in a tracker fund

These are a great way of spreading risk across many companies through the ownership of just one investment.

From 1964-2022, a fund tracking the S&P 500 would have returned 24,708%.

Of course, there’s no guarantee that history will be repeated.

4. Be patient

Finally, Buffett is quoted as saying: “It is not necessary to do extraordinary things to get extraordinary results“.

In my view, too many people get caught up trying to find the next ‘big thing’. Remember, slow and steady sometimes wins the race.

Investing small — and often — can be effective. A sum of £50 a month, earning a return of 5%, will grow to nearly £30,000 after 25 years.

I don’t think I’ll ever be a billionaire, but, in my opinion, it’s never too late to follow in the footsteps of Warren Buffett and start building wealth by investing in stocks and shares.

I’m considering selling Bluefield Solar as they couldn’t organise/be bothered to tell investors when they would receive their dividend.

If this is the ethos of the company it’s better to sell, when in doubt get out.

Most probably going to re-invest in the following

A slightly lower total dividend yield but safer dividends for the long term with a chance for capital gains when interest rates start to fall.

I may be able to sell one of the Trusts later and stag Nat West shares depending on the discount offered to the public.

That’s the P of the plan.

BSIF leaves the watch list on their inability to tell shareholders on which day they would receive their dividend.

The Motley Fool

I plan to retire early with the passive income I’m making today.

Story by Charlie Keough

Passive income is an investor’s dream. I can buy dividend shares, create extra cash outside of my main source of income, and do very little work to achieve it.

That may seem too good to be true. But it’s not. I’m already doing it. Most of the shares I own provide a dividend. I’m sure lots of my future investments will too.

A recent report from the Pensions and Lifetime Savings Association stated that a single person would need £14,400 a year for a minimum income in retirement. For a comfortable retirement, that figure rises to £43,100.

By relying on passive income, I plan to retire early. Here’s how I’m setting out to achieve it.

Targeting the UK
Firstly, I’m buying UK shares. I largely target either the FTSE 100 or FTSE 250. The reason for this is because they offer meaty yields. I also think these companies look undervalued at present.
I can see why investors have fallen out of love with UK shares. In the last decade, they’ve failed to deliver. However, I think now they look too cheap to ignore. In the years to come, I’m also expecting fast growth in the UK economy. Many have it placed to be the best-performing in Europe in the next 10-15 years.

Taking my time
I’m also utilising the power of time. The longer I have my money tied up in the stock market, the better chance I have of building a nest egg that’ll allow me to retire earlier.

By leaving my money invested for longer, and by reinvesting my dividends, I can further benefit from compounding. This means that I’ll earn interest on my investments as well as the extra money I make, which will also help me grow my pot faster. When the day comes, I can then draw money out as a salary.

How I’m going about it
But what sort of companies should I own? Well, ones such as Legal & General (LSE: LGEN). The insurance giant has been a mainstay in my portfolio. So far, I’ve generated an 11.1% return. However, I’m more attracted by the extra cash I can make on the side.

The stock yields an impressive 8%. What’s more, it has bumped its dividend for the last 9 out of 10 years.

As part of its latest scheme, which finishes this year, it’s set to return up to nearly £6bn to shareholders via dividends. Of course, I must note here that dividends are never guaranteed.

The stock has endured volatility in the last 18 months or so. The challenging macroeconomic environment has placed pressure on the business. As such, it has seen the total amount of assets it has under management drop. As the cost-of-living crisis ensues, this may remain a problem.

However, I plan to own Legal & General for decades. Therefore, short-term issues such as these aren’t a big deal to me. Taking into consideration factors such as ageing demographic, I think the business is in a strong position to grow in the years ahead.

At its current price, I think it’s a steal. The meaty yield it provides is a bonus too. It’s stocks like Legal & General that’ll help me give up work as early as possible.

VPC Specialty Lending Investments PLC

(the “Company”)

MONTHLY NET ASSET VALUE PER SHARE

Net Asset Value

The Company is pleased to provide its monthly net asset value per share (“NAV”) update.

As at 31 January 2024, the unaudited estimated NAV (Cum Income) per Ordinary Share (ISIN GB00BVG6X439) was 83.18 pence.

This NAV has been calculated by CITCO Fund Administration (Cayman Islands) Limited

I’ve sold the portfolio shares in Foresight Solar for a profit of

£66 and a total profit for the blog of £343.00.

The intention is to switch into PHP property where the dividend

is as ‘safe’ as u can get in the market.

The Motley Fool

Compound dividends now for the future.
Not only does Buffett own a lot of shares, his company Berkshire Hathaway owns stakes in a wide variety of businesses. Berkshire throws off a lot of spare cash each year, yet it does not pay a dividend. Why?

Buffett prefers to reinvest the money in building Berkshire, for example by buying more businesses’ shares.

Berkshire Hathaway’s Warren Buffett Offers Advice to Investors: Patience and Long-Term Gains Over Pundit Predictions

As a small private investor, I can do the same thing to try and build my passive income streams. Rather than taking out dividends as cash, I can simply reinvest them in more shares.

In the short term, that means I would not see the dividends hitting my bank account as cash. Over the longer term though, it could enable me to build my share portfolio even if I did not put in any more money myself. That could hopefully enable me to earn more passive income in future.

Admit mistakes
Buffett has made some great investing decisions. But he has also made ones that turned to be very expensive mistakes. An example was the Tesco stake he built then sold at a large loss around a decade ago.

Sometimes, when owning a share that has generated substantial passive income in the past, it can be difficult to recognise that the business is changing and is unlikely to be as lucrative in future. But dividends are never guaranteed and past performance is not necessarily an indication of what will come in future.

£££££££££££

Rule 2 of 2.

If a Trust drastically alters its dividend policy it must be sold even at a loss.