Recent research from money.co.uk shows, in 2024, the average UK savings account holds £17,365. Invested shrewdly, such a sum can earn a weighty passive income all by itself.
The catch is that big passive income rarely comes from bog-standard savings accounts. For much of the last decade, this type of account might yield a percent or two a year. I’ve seen Cash ISAs offering as low as 0.25%. That’s just not going to cut it.
Lucrative nature
My preferred method of growing savings is with the stock market. The London Stock Exchange offers access to thousands of businesses that anyone can buy into even with just a few pounds at first. These businesses all have the goal of growing the value of their shares too.
Of course, the lucrative nature of stocks and shares is no secret. Billions of pounds are paid out in dividends each year and the record profits of giants like Shell or Tesco are rarely far from news headlines.
The question is not so much ‘Do people make money on the stock market?’. Rather, it’s more ‘How do people make money on the stock market?’. The tricky part is choosing the right horses to back.
With those thousands of businesses listed in London, and many more across the world besides, it’s worth narrowing down the choices with a suitable requirement.
One requirement is that of the ’10-bagger’. This phrase was coined by billionaire investor Peter Lynch and refers to a company that’s gone up 10 times in share price.
10 times
Nvidia is an example that most people will know. In May 2020, the shares cost less than $88 apiece. Today, the shares change hands for $887. That’s over a tenfold increase in a few years. Hence, Nvidia is one of these 10-baggers.
And while American tech has had a quite terrific few years, we don’t need to focus on computers or even on the US to find 10-baggers. These companies exist closer to home.
The familiar name of Rolls-Royce (LSE: RR) achieved the feat not so long ago. The shares were below 42p in October 2020. Now they go for 428p. That’s another 10 times return for another 10-bagger.
I hold Rolls-Royce shares still and I like the future for the company. While I don’t see another 10 times return happening quickly – the pandemic year of 2020 made many travel-adjacent stocks unusually cheap – I think this might be one of the better FTSE 100 companies to own.
Rolls holds an entrenched position in an industry with high barriers to entry. The average skilled engineer isn’t likely to step out and make a new start-up building engines very easily. That gives Rolls a lot of safety from competition.
Airbus released its A350 widebody plane in 2015. Is Rolls-Royce one of the enginemakers that can produce engines for these new planes?
Well, yes, because it’s the only company whose engines work. The A350 aeroplane operates exclusively with the Rolls-Royce Trent XWB engines.
One drawback is the price. Rolls-Royce trades at around 29 times forward earnings, which is one of the highest on the FTSE 100.
Am I buying?
Even still, I expect the future to be bright for this British company. The only reason I don’t buy more is that my position is big enough already!
The post £17,000 in savings? Here’s how I’d target a weighty passive income appeared first on The Motley Fool UK.
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More reading
The Rolls-Royce share price has stalled. Is now a chance to buy?
Rolls Royce’s £4+ share price still looks a major bargain to me, so should I buy?
As the Rolls-Royce share price stalls, investors should consider buying
Why has the Rolls-Royce share price stalled around £4?
Why Rolls-Royce shares dropped in April but GE Aerospace stock surged!
John Fieldsend has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia and Rolls-Royce Plc. 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.
