Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the updraftplus domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/vestivxx/public_html/wp-includes/functions.php on line 6114

Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the wprss domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/vestivxx/public_html/wp-includes/functions.php on line 6114

Notice: Function _load_textdomain_just_in_time was called incorrectly. Translation loading for the wprss domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home/vestivxx/public_html/wp-includes/functions.php on line 6114
My £10 a day plan to retire a passive income millionaire – Vested Daily

My £10 a day plan to retire a passive income millionaire

For a lot of people, passive income is a form of pocket money. But with the right approach, I think it can be a lot more than that. In fact, simply by investing £10 a day in dividend shares I think it is possible to retire as a passive income millionaire.

It will certainly take time and I know that I might not get there. But starting in my mid to late 20s, I see the millionaire target as possible by standard retirement age. Here is how I would aim to do it.

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!

Dividend shares as passive income ideas

First I think it is important to understand the source of the passive income I would be targeting – dividend shares.

Some companies distribute profits to shareholders as dividends. These are not guaranteed. But if they are paid regularly, they can start adding up. No one knows what a company will do in future when it comes to dividends. So, to reduce my risk, I would diversify my passive income-focused pot across different companies and business areas.

The power of compounding

In the short term, dividends can be a useful source of passive income. But if they are instead reinvested, over the long term they can be the basis of a sizeable fortune. That is because of what is known as compounding. Basically, over time if my reinvested dividends are generating still more dividends, the combined effect should get bigger each year.

For example, if I put £10 a day aside and invest it in dividend shares with an average yield of 8%, after 20 years I should hopefully have around £178,000. But, after another 20 years still contributing £10 a day, my pot will have grown to over a million pounds. None of this is guaranteed if course. But the potentially dramatic increase in value in the second 20-year period is despite me contributing only a steady £10 a day. That shows the power of compounding at work. The reinvested dividends would themselves be earning me more dividends. 

Forty years may seem a long time. But if putting aside £10 a day for that length of time can make me a millionaire, I think it is worth doing.

Finding dividend shares

As well as time and the size of my contribution, another crucial element of my calculation is the use of dividend shares yielding 8%. If I invested in shares yielding 7% on average, after 40 years my investments would be worth ‘only’ £794,000. Due to the power of compounding, just a 1% difference in dividend yield can make a huge difference to my returns in the long run.

There are FTSE 100 shares that currently yield 8% or more, such as Rio Tinto and M&G. But I am targeting an average 8% yield for 40 years, not just right now. So to hit my target, I will need to take time to evaluate which dividend shares I could buy that hopefully might sustain an 8% yield or better for four decades. Such shares are few and far between.

Incidentally, in my calculation the increase in value is all due to dividends. I have not accounted for shifts in the prices of shares I own. If they fall, it may take me longer to become a millionaire. On the other hand, if the share prices increase, I may be able to retire a millionaire without even having to wait 40 years!

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Christopher Ruane 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.

This post was originally published on Motley Fool

Financial News

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