A Stocks and Shares ISA is a hugely rewarding way to build up a pot of money for your retirement. So how much would it take to target a second income of £2,066 a month by 2066?
That works out at £24,792 a year. Which is a pretty useful sum, especially if it’s on top of your State Pension, and maybe a workplace pension or two. Better still, that income’s tax free. As is the share price growth.
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The amount you need to save depends on the average dividend yield generated by your investments.
- At a 4% yield, an investor would need £619,800 invested.
- At a 5% yield, the required total falls to £495,840.
- At a 6% yield, the figure drops to £413,200.
How much do I need to invest each month?
Those are daunting targets, but 2066 is still 40 years away. Let’s say you tuck away £150 a month and bagged a return of 9.64% a year, with dividends reinvested. That’s the average yearly return on a Stocks and Shares ISA over the last decade, according to Unbiased. By the end of that, you’d have £792,219.
With a 5% yield, you’d actually have income of £39,611 a year, or £3,301 a month. It’s always good to aim high. Just remember that inflation will reduce the value of this income in real terms. Aim to increase you contributions every year, to counter it.
A diversified portfolio of FTSE 100 and FTSE 250 shares offering dividend income and capital growth could help you move closer to that goal.
One dividend stock I’d consider is Persimmon (LSE: PSN). Like most major UK housebuilders, its shares have endured a difficult few years. The Persimmon share price is down 20% over the last 12 months and 65% over five years.
Rival housebuilders have followed remarkably similar paths as higher interest rates, stretched affordability, rising costs and weaker demand hit the sector. The end of the Help to Buy scheme in 2023 was another blow, while the post-Grenfell cladding crisis added another layer of costs.
Yet Persimmon remains profitable. Last year, pre-tax profits rose 13% to £446m. Markets only expected £440m.
Is Persimmon good value?
The shares currently trade on a price-to-earnings ratio of 11.8, which doesn’t look excessive to me. If the US peace deal with Iran holds, that could cut inflation and mortgage rates. I don’t expect Persimmon to instantly benefit, but the outlook could brighten by the autumn.
However, investors often achieve their best returns by buying stocks before conditions fully improve. By the time recovery becomes obvious, the early opportunity may have gone.
Persimmon shares are forecast to yield a meaty 5.97% this year. That’s despite the board slashing the dividend by 75% to 60p a share in 2022, and holding it there since.
Persimmon is a stock I think is one to consider buying as part of a balanced ISA portfolio. I’d buy it, but already have exposure to the housing market recovery via Taylor Wimpey. Fingers crossed we get it soon.
Should you invest £5,000 in Persimmon Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Persimmon Plc made the list?
Harvey Jones owns shares in Taylor Wimpey.
