I’m 30, and I invest for a second income. The thing is, I’m not investing for a second income today, I’m looking to build wealth investing and then take a second income when it’s really worth it.
For example, if I had £20,000 in savings, it would be hard for me to generate anything more than £1,600 a year as a second income over the next year. That’s fine, but £200 a month isn’t going to make a profound difference to my life.
Instead, I’m thinking longer term. Because, by investing wisely, saving regularly, and with compound returns, I can turn this £20,000 into something much larger.
Building wealth
If I want to turn my £20,000 into a substantial sum, I need to follow an age-old strategy for building wealth. And by diversifying my investments and taking advantage of compound returns, my money can work for me.
Regular contributions and smart investment choices are key. If I stay disciplined and patient, there’s potential for significant growth over time. It’s about understanding risks, staying informed, and adapting strategies as needed.
While there are no guarantees, the combination of strategic investing and the power of compounding offers a pathway to building substantial wealth over the long term.
Of course, I need to recognise that if I make poor investment decisions, I could lose money. That’s why it’s really important I use the all the resources available to me to help me make the right decisions.
Achievable aims
It’s amazing what can be achieved when we take a long-term investment horizon and we harness the power of compound returns.
Compound returns are the magic behind long-term wealth-building. As I consistently invest and let my returns generate additional earnings, the compounding effect kicks in.
Over time, I not only earn returns on my initial investment but also on the accumulated returns. It’s a snowball effect that accelerates growth.
However, I need to have achievable objectives and a realistic timeline that reflects my capacity to continually put money aside.
As I mentioned above, continually adding to my £20,000 will help fuel the growth of my portfolio. And that could be anything, perhaps just £100 a month.
I’ve also got to think about what’s achievable over the long run in terms of an annualised yield. Many novice investors will look to achieve 6-10%, while I’m aiming for low double-digits.
Some investors can do better. In fact, I know of a portfolio that has gained 33% a year since inception.
Bringing it all together
So if I had £20,000, and I added £100 a month, while achieving an annualised return of 10%, after 30 years, I’d have £624,680.
Of course, there are so many variables here, including the impact of investing at the beginning of the month versus the end, over a long period of time, it just means I’ve got more money in play for longer.
So here’s how it would look.
Created at thecalculatorsite.com
And with £624,680 invested in stocks, well, I could do a lot better than just £1,600 a year. If I had it all invested in dividend stocks, with an average yield of 8% (this is achievable today but may not be in 30 years) I’d receive £49,974 annually.
The post £20k savings at 30? Here’s how I’d aim for a second income worth £49,974! appeared first on The Motley Fool UK.
Our best passive income stock ideas
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Get your free passive income stock pick
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
With an empty ISA at 30, I’d follow Warren Buffett’s golden rule to build passive income
Should I back this year’s 2 biggest FTSE 100 flops for a 2024 recovery?
This growth stock might just be getting started
I’m tempted by the Shell share price but I’ll buy this 9.8% ultra-high-yield stock first
Up 12% in a month, Lloyds shares still look cheap as chips to me
James Fox has no position in any of the shares mentioned. 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.
