One of the advantages to living in the UK is how simple it is to access the London Stock Exchange. Anyone able to save a few quid from the day job can put the money to work across the thousands of businesses listed in London. With careful planning and a few shrewd choices, investors might watch the small amounts they start with turn into huge amounts of cash by the end – and be able to withdraw it without paying a single penny of tax.
A saving rate of £300 a month could even be enough to earn a lifelong passive income of £30,076 a year. Here’s how.
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.
How much passive income?
One of the ways to turn smaller savings rates into substantial nest eggs is by investment choice. This doesn’t mean betting the farm on outrageous gambles. Rather, it means sensible stock choices that might outperform the average. Even an extra 1% or 2% return on average can make a big difference.
How big? Well, an investor saving £300 a month over an investing timeline of 30 years at a 9% average return creates a total of £510,633. The same strategy with an 11% return builds up to £751,916. The difference in just a couple of percent is a quarter of a million pounds!
That makes a big difference in the overall passive income we might withdraw, too. We will want to dial down the percentage to a safer 4% at that time. The smaller sum might churn out £20,425 yearly in passive income. The larger sum? As much as £30,076.
One option?
The key to gaining that small but vital edge is investing in high-quality companies. There is a huge difference in throwing your money in with a firm that chugs along versus one that thrives. Take Nottingham-based Games Workshop (LSE: GAW), for example. The tabletop games seller and owner of the Warhammer brand is up 30 times in the last decade.
The firm has built a loyal fanbase selling figurines and painting supplies for Space Marines and other such fantasy and science-fiction creations. It generates a strong (and high-margin!) income licensing out the intellectual property for board games and television too.
If the company continues to perform well, then I think it could still be worth considering today. While an investor would want to diversify, having a couple of good picks in a diversified basket of 10 to 15 stocks could help reach difficult passive income goals.
Although, being aware of risks is important too. Games Workshop manufactures all its stuff in the UK, which might not be as cheap going forward, thanks to spiralling energy and wage costs.
On the whole? There will always be plenty of stocks that achieve above the average. That’s why some investors may wish to tailor their passive income goals around targetting such investments.
Should you invest £5,000 in Rolls Royce right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls Royce made the list?
John Fieldsend has positions in Games Workshop.
