Like the flap of a butterfly’s wings in one part of the world might set off a tornado in another part, the world of passive income can come down to small actions. One of those might be a choice that most adults make at some point: whether to get a car or not.
The average used car price has now (somehow!) risen to around £17,000. What if I went for public transport instead? What if I bought a bike? How much passive income could binning the four wheels earn me down the line? Let’s work it out.
Running costs
I’d be able to add some monthly running costs to my initial lump sum, too. Between petrol, insurance and breakdowns that seem to come at the worst possible time, I could be looking at hundreds a month. Of course, catching the tube isn’t free and I might have a shiny new carbon fibre bicycle to take care of. Let’s call it £200 a month on the saving side.
I’ll pile up a decent chunk of cash just from putting that money away alone, but really I’m looking to grow that with shrewd investment choices. To really put the afterburners on, I might want to invest in something like Pershing Square Management (LSE: PSH).
It’s a hedge fund so it invests in several stocks, which gives a bit more diversification than just a single one. But it still allows the chance for great returns and I’ve got a team of experts working hard to ensure that does happen.
The fund made some incredible gains during the pandemic as it saw the initial panic was overblown. Indeed, it’s one of the FTSE 100‘s top performers over the last five years too, and is a stock I own myself. There are risks with any stock, and Pershing may struggle in a downturn in the US economy given its exposure to a small number of high-valuation companies.
Crises
Will my invested money lead to a neverending surge of wealth in my account? Absolutely not. The only thing you can really rely on in the stock market is its erratic nature.
The ups and downs don’t just come on the day to day, either; there will be a few crises along the lines of 2008 or 2020 on the way, too. But companies do have a centuries-long knack of earning excellent rewards for those putting their hard-earned cash to work in them.
How big of an income might I be looking at then? Well, on a fairly standard investing timeline of 25 years and using a fairly standard 9% rate of return, I’d hope to end up with £359,654 sitting in my account.
If I then want to withdraw from that then a 4% drawdown hands me £14,385 a year or £1,199 a month. That sounds like as good a reason as any to clear a space in the driveway.
The post £17k to spare? Here’s one way to try and turn it into a passive income of £1,199 a month appeared first on The Motley Fool UK.
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John Fieldsend has positions in Pershing Square. 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.
