There will come a time in my life when I think I would rather have safe, low-risk passive income than a lot of potentially volatile shares.
I’ll be looking for stable, well-diversified strategies to make sure I sleep well at night and can maintain my portfolio long term.
Why I think £650K is a good aim for me
To get reliable residual income, I first have to have a foundation. A nest egg of around £650K doesn’t seem too hard to achieve if I keep up my efforts for a few decades.
First of all, starting with just £10K and assuming I’d earn the 10% market average annual return, I could end up with £650K if I invested just an extra £200 per month for 30 years. That’s due to the power of compound interest.
What’s great about this strategy to build a foundation is it’s easy and low-stress. It also only requires small investment contributions every month, meaning I can enjoy life and spend any other money I earn along the way to my goal.
Of course, there’s a risk that the market won’t perform as well as it did historically. So, I have to be prepared that my expectations might not be met.
Looking for bonds
Having an all-shares approach for 30 years might seem risky, but it is a plausible strategy. After all, that’s the way Warren Buffett has primarily invested.
However, a lower-risk strategy to get a stable return involve bonds. Government issues are particularly popular, especially in the US. However, good corporate debt can also be a viable option for me.
Of course, there’s always a risk of default, which is when an issuer can no longer make the interest payments or repay the principal amount. However, with high-rated bonds, this is very rare.
Additionally, if inflation rises, the interest payments from a bond yielding 5-6% may be offset. All it takes is inflation to be at or over those figures for the bond not to generate any real returns.
A set of dividend shares
After buying my bonds, I’ll look for some dividend shares to round out my portfolio.
I’ve found one company worth considering called Glencore (LSE:GLEN). It’s one of the world’s largest commodity traders. Particularly, it works in areas like the production of thermal coal, copper and zinc.
It has a nice 8.4% dividend yield, which is way higher than I’d be expecting from the other shares. My average to seek would be roughly 5-6%. The company also hasn’t reduced its dividend since 2021.
Additionally, at a price-to-earnings ratio of around 7, I think it’s unlikely the shares will lose value if I were to buy them now.
However, it currently only has 7% of its debt ready to be paid off in cash. This is a considerable risk for me to consider.
Furthermore, its dividend yield hasn’t reliably been 8%. Management has raised and lowered it over time, so it would probably average to my 5-6% expectation.
£30K a year
So, I think my plan is good. If I had a nice set of bonds and dividend shares averaging 5.5% each, my £650K a year invested could yield £35,750.
That’s the equivalent of around £17K today if adjusted for inflation, certainly helping to top up a state pension.
The post I’m aiming for £30K in annual passive income from £650K in bonds and shares appeared first on The Motley Fool UK.
Should you buy Glencore Plc now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
These 3 beaten-down value stocks should soar when interest rates fall
As Glencore shares trade at a 52-week low, here’s why I snapped up more
With Glencore’s share price down 28%, should I buy this 8.4%-yielding stock?
With £6,000 in savings, here’s how I’d target £420 in passive income
A FTSE 100 stock with 8% yield? Why Glencore could double my money
Oliver Rodzianko 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.
