It’s common knowledge that the UK State Pension alone is far from sufficient to live a comfortable retirement. That’s why building a separate investment portfolio is so important. And with just £450 a month, it’s entirely possible to create a second income that comfortably beats it.
Here’s how.
The index fund starting point
By investing £450 a month at the UK stock market’s historical average return of 8% a year for 25 years, a portfolio would grow to roughly £427,962.
Following the 4% withdrawal rule, that translates into a sustainable second income of £17,119 a year. And when combined with the State Pension, that unlocks a total annual retirement income of £29,666.
Not bad at all. But patient investors who are willing to do a little more work could do considerably better.
Unlocking even bigger returns
Diploma‘s (LSE:DPLM) a compelling example of what successful stock-picking can deliver.
Over the last 15 years, Diploma shares have delivered an annualised total return of around 23.65%. And anyone who’s been drip feeding £450 each month throughout this period is now sitting on a staggering £743,181 – nearly double what index funds are expected to achieve a full decade faster!
In terms of passive income, such a large portfolio would be enough to generate closer to £29,727 alone. Add the State Pension on top, and total annual retirement income reaches £42,274. All without needing to lift a finger.
So does this stock still deserve a place in a long-term portfolio today?
What’s driving the momentum in 2026?
As a quick crash course, Diploma’s a value-add solutions group, supplying critical components and specialist services across three divisions: Controls, Seals, and Life Sciences.
And looking at the group’s latest results, it’s not hard to see why the shares have been so successful. Even in 2026, with a £9.5bn market-cap, Diploma’s results were outstanding.
Revenue rose 17% to £851.1m, adjusted operating profit surged 33% to £208.9m, and earnings per share (EPS) grew 36% to 109.2p. All of these beat analyst expectations. And when paired with a 300 basis point expansion in operating margins, it’s no wonder the stock’s climbed a further 34.2% since the start of the year.
But is there anything to worry about?
Even after raising full-year guidance, Diploma’s scorecard isn’t blemish-free.
International Seals continued to struggle in the first half, with only 2% organic growth as the UK and European industrial markets remained soft. And with 15 acquisitions completed in the last year, integration risk is real. Don’t forget integrating any business is a hard task, let alone trying to achieve 15 simultaneously.
Nevertheless, management’s track record on integration is unusually successful.
So is Diploma still worth buying?
Diploma isn’t a cheap stock. But that premium price tag is well-earned, in my opinion.
The business has compounded earnings at 26% a year for five consecutive years by consistently finding ways to grow organically and through disciplined acquisition. This is exactly the type of quality compounder that can build serious wealth over the long run. And it’s why I’ve already added it to my own portfolio.
But it’s not the only top-notch business that’s caught my eye lately…
What income stock do we like better than Diploma Plc right now?
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Zaven Boyrazian owns shares in Diploma.
