One of my plans for 2023 is to give my passive income a boost. I think that New Year’s resolutions are best when they involve small, manageable changes, rather than dramatic shifts in behaviour.
That’s why my aim is to put aside just £2 per day to invest in a passive income portfolio. I think that’s something that I have a reasonable chance of sticking to.
I’m not expecting to retire next year using this plan. But I am expecting to start myself on the road to generating a meaningful boost to my monthly income.
I have a top five list of stocks to buy for my portfolio next year. But first of all, it’s worth stating what I’m looking for in a dividend stock.
Stocks vs. bonds
I think that 2023 could be a great time to get started. In the UK, interest rates have risen from 0.1% at the start of 2022 to 3.5% at the moment.
As a result, savings accounts and bonds are offering some higher returns than they were 12 months ago. A 10-year Gilt comes with a 3.5% yield.
But I’m not planning on using bonds to try and generate passive income. I think that there are some better opportunities in stocks.
I can definitely see the attraction of bonds at the moment. With a recession on the horizon, the security of a payment that is unlikely to fall is a significant positive.
In my view, though, a macroeconomic headwind is likely to prove temporary. Over time, I expect earnings to grow compared to their current levels.
As a result, I think that dividend stocks will offer a better passive income return than bonds in the long term. That’s why I plan to invest the £2 I save each day into stocks.
£2 per day
So what could I hope to achieve with just £2 per day? That’s not a big sum, so it seems unlikely that I’m going to be in a position to quit my job by the end of the year and live off my dividends.
Over time, though, £2 per day can turn into something pretty substantial. Exactly how much I can earn by investing £2 per day for 30 years depends on what kind of return I can make.
With share prices where they are, I think that a 5% dividend yield is achievable. If I saved £2 per day and compounded it at 5% for 30 years, I’d have an investment earning £2,300 in annual passive income.
Stocks like Legal & General, Realty Income, and Rio Tinto all have dividend yields above 5%. And if share prices continue to fall, then those yields will only increase.
If this happens, then my eventual passive income will be even higher. If I can average a 6% return, the passive income generated reaches £3,200 in the 30th year and 7% on average gets me to £4,567.
Passive income
Ultimately, the amount that I’ll make in passive income depends on fluctuations in the stock market. And there’s nothing I can do about that, so I’m better off focusing on what I can control.
The part of my plan that I can control involves saving £2 per day and investing it in good quality businesses. From there, I should do well enough whatever happens.
The post My plan to generate passive income in 2023, starting with £2 per day appeared first on The Motley Fool UK.
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Stephen Wright has positions in Realty Income. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.