I don’t plan to work forever, so I invest in shares to eventually live off passive income from my portfolio. But how much does one need to target a large-enough cash stream in retirement? It may be smaller than you think.
The idea of making an instant fortune on the stock market is an appealing one. But that often requires a lot of luck and a huge upfront investment. And while a lot of people have succeeded in striking it rich, there’s plenty that have been left out of pocket with high-risk strategies.
So I’m not taking any chances by making ‘Hail Mary’ investments. Why would I? For decades, share investing has rewarded patient investors with life-changing passive income in retirement. Even just a £99 monthly investment could turn into a multi-million-pound portfolio.
ISAs and SIPPs
Yet the key to building long-term wealth isn’t just down to what you buy, but how you buy it. What I’m talking about is holding your portfolio in a tax-efficient product like a Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP).
I actually invest in both of these products myself. The reason? Protection from capital gains and dividend taxes, giving me more money to accelerate the compounding process. There’s also tax relief on the SIPP of 20% to 45%, providing an extra handy cash injection.
Let me give you an example of how this works. If you’re a higher-rate taxpayer, you’re entitled to 40% tax relief, raising a £99 monthly contribution to £124.
A monthly investment this size would — based on the stock market’s long-term yearly return of 9% — translate into a £918,205 portfolio after 45 years. That would then deliver a £36,728 passive income if 4% were drawn down each year.
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.
17.5% growth and income opportunity?
That’s pretty good, I’m sure you’d agree. But here’s the thing — I think I could do much better than this.
This is because of my diversified investing strategy. I hold index-tracking and other exchange-traded funds (ETFs) to grow my money while spreading risk. But I also take time to research and buy individual shares, driving my portfolio to achieve market-beating returns.
Games Workshop (LSE:GAW) is a great example of this. The FTSE 100 share has risen 123% since I first invested in 2020. Including dividend income, my investment has delivered an average annual return of 17.5%.
Games Workshop is the leading player in a niche industry: fantasy wargaming. It manufactures games systems and models that hobbyists build, paint, and do battle with, mainly under the Warhammer brand. It’s a niche interest, sure, but one that’s experiencing fantastic growth across the globe.
Competition is rising for Games Workshop. But I’m confident a steady stream of new product releases should keep it on top. I’m also excited by the FTSE firm’s plans to ramp up licensing of its IP for TV, video games, and other media.
Here’s how individual shares like this could boost my wealth. Even if I manage just an extra 2% over the stock market’s long-term average return, I should have a £1,853,603 SIPP after 45 years. In terms of passive income, that could be worth £74,144 a year.
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Royston Wild owns shares in Games Workshop.
