There a few better things than a second income. It’s something that can help with bills, pay for holidays, or just allow us to spend less time working.
Interestingly, and according to the Office for National Statistics (ONS) this week, Britons are actually putting aside more money now than they did before the pandemic.
And the UK’s sluggish economic performance in recent years could be put down to the £338bn that Britons have put to one side rather than using for economic activity.
Moreover, the broad performance of the UK stock market in recent years suggests that most of us haven’t been investing.
However, if Britons did put more money into stocks and shares instead of savings accounts, perhaps we’d all be a little richer.
Here’s three simple steps I’d employ to turn cash on hand into a second income worth £50,000.
Three steps to success
If we divide that £338bn by the UK’s population, we come to a figure of £5,121. And that would be a great starting point for any investor.
My first step would be to open a Stocks and Shares ISA, and invest that money into stocks, bonds, funds, and ETFs. This allows us to generate wealth and receive dividends tax free — this really helps things compound.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
But a successful investment journey often requires consistent contributions. Even something like £400 a month would really add up over time, giving our portfolio fuel to grow faster. That’s my second step.
And part three is making sensible investment decisions. Bad investment decisions compound over time. If we lose 50% on an investment, we need to gain 100% to get back to where we were.
That’s why it’s so important that we make the right investment decisions, picking the stocks, bonds, and funds that will help our portfolio grow.
To comfortably earn £50,000 in dividends, I’d probably need around £1m. I say that because dividend yields are unlikely to remain as elevated as they are today forever.
And if I started with £5,121, and then contributed £400 a month, while growing my investments by 10% annually, it’d take me 30 years to reach £1m.
Investing wisely
It’s easier said that done. Many novice investors lose money. I put a lot of time into researching every stock I invest in, but not everyone has time for that.
That’s why many investors go for ETFs like the Vanguard Funds Plc S&P 500 (LSE:VUSA). This is an exchange-traded fund, listed in pounds, that seeks to track the performance of the S&P 500.
The S&P 500, or Standard and Poor’s 500, is a stock market index that tracks the performance of 500 of the largest companies listed on stock exchanges. Essentially, it reflects the value of the biggest 500 companies in the US.
I personally don’t invest in this ETF, but I think it’s certainly a great way to gain exposure to a huge chunk of the world’s largest companies. The largest holdings include Microsoft (6.9%), Apple (6.3%), and Nvidia (6.1%).
Of course, there’s no guarantee that the S&P 500 will continue moving upwards over the long run. However, its track record is pretty strong. And in recent years, its track record has been much stronger than the FTSE 100.
That’s probably why it’s the most popular ETF in the UK right now.
The post 3 simple steps to a second income of £50,000! appeared first on The Motley Fool UK.
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More reading
I’m checking the charts to see where the easyJet share price is headed
I’d build a second income with £5 a day like this!
My favourite UK stock’s up 56% in a year – can it continue to smash the FTSE?
Why I’ve fallen in love with the Lloyds share price
After hitting a 52-week low is this former FTSE 100 darling now a screaming buy?
James Fox has positions in Nvidia. The Motley Fool UK has recommended Apple, Microsoft, and Nvidia. 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.
