How I’d invest £10 a week for passive income

I firmly believe investing in stocks and shares is one of the most straightforward ways of building a passive income for life. And I think it is possible to get started with a simple investment of just £10 a week. 

Building the pot

Such an amount each week might not seem a tremendous outlay. However, these small contributions can add up over time.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

This weekly monthly sum equates to £520 a year. If I invest this figure in a portfolio of dividend stocks yielding between 7% and 8% per annum, I could achieve an annual passive income of nearly £42. Not a amount, but it is a start. Investing is a marathon, not a sprint, after all. 

In investing, the real money is made in the long term. Indeed, according to my calculations, if I continue to invest £520 a year for 10 years and reinvest all of my income, I could build a nest egg worth nearly £8k. This could potentially generate an annual passive income of £640. 

If I increase my weekly contribution, a much bigger pot would be possible. Of course, I could also lose money if my investments don’t work out as I hoped because I know my capital is always at risk. 

My figures show that if I double the monthly contribution, I can build an investment account worth £15k. A pot of this size could generate £1.2k in passive income every year. If I can put away £50 a week, or £2.6k per annum, I could build a £40k nest egg. This could produce £3.2k per annum in passive income. 

The longer I can save, the more money I can earn. If I can save £2.6k per year for 20 years and make an 8% return per annum, after two decades, I would have £123k in investments. The potential here is to generate nearly £10k in passive income every year. 

Passive income potential

Of course, there is no guarantee I will earn an 8% return on my money every year. I could even earn nothing or lose money. My figures only illustrate the potential returns from this strategy over the next couple of decades. Nevertheless, it is a strategy I am following and intend to keep following for the foreseeable future. 

Some of the best dividend stocks on the market at the moment, in my opinion, are Direct Line and Rio Tinto. These companies support prospective dividend yields of around 7% and 13% respectively. That gives an average dividend yield of 10%, above my 8% projection in the example above. 

As company dividends are paid out of profits, they are not guaranteed. A sudden decline in profits could force an enterprise to reduce its dividend payout. 

Still, I think the level of income on offer from these two companies shows how it is possible to build a passive income stream by using stocks and shares with an investment of just £10 a week. All it requires is a disciplined and consistent investment strategy. And a bit of patience. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Rupert Hargreaves owns Direct Line Insurance. 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.

This post was originally published on Motley Fool

Financial News

Daily News on Investing, Personal Finance, Markets, and more!