One of my goals is to eventually turn my ISA investments into a reliable second income. Currently, my portfolio is in a growth phase, so I’m reinvesting dividends and focusing on earnings and dividend growth. But one day, I’ll switch my strategy to maximise dividends and passive income.

Now, an investor with £20,000 isn’t starting with a life-changing sum of money. But thanks to the power of compounding, and dividend growth, that sole initial ISA could potentially become a portfolio capable of generating £12,000 a year in passive income. So what’s the catch?

Well, it won’t happen overnight. But for investors willing to think long term, the numbers can be surprisingly compelling.

How to target a five-figure second income

Let’s start with a simple example. Suppose an investor places £20,000 into a Stocks and Shares ISA invested in quality FTSE 100 and international dividend-paying shares. If that portfolio generates an average total return of 9% and all dividends are reinvested, the pot could grow substantially over time.

After 10 years, it could be worth around £47,347. And after 25 years, the same investment could be worth roughly £172,462.

Now let’s assume the investor shifts towards a portfolio focused on earning passive income from dividends. In this example, we can assume the portfolio yields around 7%.

At that point, a portfolio worth £172,170 could potentially generate around £12,072 a year in dividend income. That’s just over our £12k target.

Of course, real-world returns will vary and there are no guarantees. But this example demonstrates the extraordinary impact that time and compounding can have on a relatively modest starting investment.

Here’s how to reach the goal much faster

Even more surprising is the effect of regularly adding investments over time. Now assume our investor adds £5,000 every year to their ISA. Notice how the magic of compounding can really amplify returns over time.

The result is that it should be possible to reach a £12k second income much faster than with a one-off investment. In this case, in around 10 to 15 years.

But which type of company could help drive those returns?

Could Aviva help accelerate the journey?

One company that regularly attracts the attention of income investors is Aviva (LSE:AV.). This business generates substantial cash flows from a wide range of financial products and services.

What I find particularly attractive about Aviva is its combination of defensive characteristics and income potential. Its insurance business helps create relatively predictable earnings across economic cycles. Meanwhile, its growing wealth and retirement businesses offer exposure to long-term demographic trends.

Bear in mind that Aviva isn’t immune to a prolonged economic downturn. And unexpected increases in insurance claims could also reduce profitability and future dividend growth.

Aviva currently offers a 6.5% dividend yield. That’s more than double the 3% that the FTSE 100 offers. It also has a long history of both paying and growing its shareholder payouts.

And just like Aviva, the Footsie holds many others that offer a powerful combination of compounding and growing dividend income. And I’ll be keeping my eye on each and every one of them.

Should you invest £5,000 in Aviva 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 Aviva Plc made the list?

Harshil Patel does not own any positions in any of the companies mentioned.

The post How to turn a £20k ISA into a £12,000 yearly second income appeared first on The Twelfth Magpie.

More reading

• How many Aviva shares would I need for a £5,000 second income?
• How much second income could a £20k Stocks and Shares ISA started now earn per year?
• £12k invested in a Stocks and Shares ISA 10 years ago is now worth…
• I’m looking for the FTSE 100’s best value stocks to buy in July. Have I found them?
• 2 FTSE 100 dividend shares I own for long-term passive income!

For a full-time worker in their 50s, building a passive income stream before retirement might be easier than first thought. In fact, a £18,472 investment portfolio generating a 6% yield could produce around £1,108 a year in extra cash. Better still, if those dividends are reinvested over time, the income could grow significantly.

But how realistic is that opportunity?

Let’s crunch some numbers. That £1,108 could buy more shares to add to the total pot. Each of these new shares also pay a dividend. So by the end of year two, it could result in a total pot worth £19,580 generating £1,175 of dividends. That’s an extra £67 of passive cash.

It might not seem like much now, but over time those additional payments can add up.

Let’s take things a step further. Many dividend shares also manage to grow payments over time. Dividend growth can amplify passive income even further.

Several top FTSE 100 income shares have grown dividends by 8% a year. This causes a snowball effect over time. For instance, with an initial 6% yield, 8% dividend growth rate, and dividend reinvestment, I calculate that our investor could expect to earn £8,256 in annual passive income. That equates to a whopping 45% yield on initial cost.

Of course, in reality, things can change over time. Dividends can rise or fall depending on market factors.

That’s why I focus on solid and stable shares that are most likely to remain consistent over time.

Does Legal & General deserve a closer look?

Enter Legal and General (LSE:LGEN). This stock frequently appears on the radar of UK income investors. The company operates across pensions, retirement products, and asset management. These businesses generate substantial cash flows that have historically supported attractive shareholder payouts.

Also, the UK’s ageing population continues to increase demand for retirement planning. This should provide a favourable backdrop for growth in the years ahead.

While no stock is perfect, Legal & General’s blend of cash generation, established market position, and dividend history helps explain why income investors continue to pay attention.

Currently, this income share offers an 8% dividend yield. It has also managed to grow dividends by 5% a year over the past decade. This looks like an appealing option.

But investors should never solely focus on yield. A high yield is only valuable if it can be sustained. Also bear in mind that Legal & General isn’t immune to weaker economic growth. It’s also impacted by changes to pension regulations and all these factors can put pressure on future dividend payments.

Is now the right time to build passive income?

Many workers in their 50s feel they’ve missed their opportunity to build meaningful wealth. I think that’s often a mistake.

Even with retirement approaching, 10 to 12 years could be enough time for compounding to make a significant difference, especially when dividends are reinvested.

In my view, the most important step isn’t finding the perfect dividend share. It’s building a portfolio of quality businesses and giving them time to work.

And if Legal & General doesn’t float your boat, there are plenty more fish in the Footsie.

Should you invest £5,000 in Legal & General Group 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 Legal & General Group Plc made the list?

Harshil Patel does not hold any positions in the companies mentioned.

The post How an £18,472 passive income portfolio could generate £1,108 a year in extra cash appeared first on The Twelfth Magpie.

More reading

• Can someone put money in the stock market, quit work, and live off the passive income instead?
• With a 7.5% yield and P/E of just 12.4, is now the best time to buy Legal & General shares?
• This income stock could turn £10,000 into £20,610 within 10 years
• This FTSE 100 share pays passive income of 7.5% a year!
• Why ultra-high-yielding Legal & General shares are even better than I thought!

Artificial intelligence (AI) has been one of the most powerful investing themes of the decade. And for shareholders of Arm Holdings (NASDAQ:ARM) and Marvell Technology (NASDAQ:MRVL), the rewards have been extraordinary. Both stocks have delivered gains of more than 250% this year, making them among the top stocks to buy for 2026 to date.

The obvious question now is whether investors have missed the opportunity. After such huge gains, can these AI leaders continue climbing, or has too much optimism already been priced into their shares?

Let’s take a look at the numbers.

How much could this winning AI investment have made?

The scale of the AI rally has been remarkable.

An investor who bought £10,000 of both stocks at the start of the year would be sitting on a chunky pot worth £36,200. And considering we are still in the first half of 2026, that is truly incredible.

That’s the kind of return that can dramatically alter a Stocks and Shares ISA or SIPP portfolio.

These kinds of returns used to be limited to tiny high-risk penny stocks. But Arm Holdings and Marvell Technology are technology giants worth $447b and $253b respectively.

The reason behind these gains is straightforward. AI infrastructure spending has exploded. Technology giants are investing billions in data centres, networking equipment, and chips that run increasingly sophisticated AI models.

Arm and Marvell may not be household names, but they both occupy important positions in the AI ecosystem. Arm is actually a British chip designer based in Cambridge.

Meanwhile, Marvell provides the networking and connectivity solutions needed to move vast amounts of data around AI infrastructure.

Still the top stocks to buy today?

Nvidia’s CEO Jensen Huang recently declared Marvell as the “next trillion-dollar company”. If his projection proves to be correct, investors would see a fourfold return if they were to invest in Marvell shares today.  

Marvell focuses on the infrastructure behind AI. What I find particularly attractive about Marvell is its exposure to multiple AI growth drivers. For instance, it benefits not only from AI training, but also the networking requirements needed to support future AI technology.

It’s a business with strong sales and profits. With its return on capital employed of 17% and healthy profit margin, I would consider it to be a high-quality share.

Can high expectations be met?

But expectations for future growth are high. If AI spending growth slows or if customer demand fails to meet lofty expectations, the highly valued shares could experience significant volatility.

The same risks apply to ARM. In fact, I would argue that ARM is the slightly riskier proposition with an even loftier valuation. Also, a large proportion of Arm’s licencing sales come from a relatively small group of customers. If key partners reduce orders or develop alternative technologies, future sales growth could be affected.

For investors looking at AI and wondering if they’ve missed the boat, I think AI adoption still appears to be in its early stages.

All things considered, I’m optimistic. I already have enough exposure to the sector, but with careful position sizing and diversification, investors should consider adding both to their stocks-to-buy list.  

Should you invest £5,000 in Arm Holdings 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 Arm Holdings made the list?

Harshil Patel does not hold positions in the companies mentioned.

The post Up over 250%, are these AI names still among the top stocks to buy? appeared first on The Twelfth Magpie.

More reading

• Can these 3 thrilling AI stocks become S&P 500 tech giants like Amazon, Apple and Nvidia?

The average Stocks and Shares ISA for 45- to 54-year-olds is said to be worth £25,362.

But how much could this be worth over the next decade? Well, to calculate this we’d have to make some assumptions as follows:

• Starting investment: £25,362
• Average annual return: 8%
• Investment period: 10 years
• No additional contributions
• Dividends reinvested
• No taxes due within the ISA wrapper

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.

Using compound growth, I calculate the portfolio could grow to around £54,754. That’s more than double the original amount.

Of course, future returns are never guaranteed. Markets move up and down, particularly in the short term. That said, history shows that patient investors who remain invested in quality companies should benefit from a rising long-term stock market.

But which quality companies could help drive these returns?

Could National Grid still be an attractive investment?

One company many income-focused investors continue to watch is National Grid (LSE:NG.). The business operates critical electricity and gas infrastructure across the UK. Because these assets are essential to everyday life, revenues tend to be more predictable than those of cyclical businesses.

National Grid has long been popular among dividend investors thanks to its history of shareholder payouts and defensive characteristics. It currently offers a 4.1% dividend yield with 2.4% dividend growth forecasted.

Looking ahead, the ongoing transition towards electrification, renewable energy projects, and grid modernisation could also create opportunities for future growth.

Bear in mind that it operates in a heavily regulated industry where rules are subject to change. Along with higher interest rates, this could impact future profits and shareholder returns.

In my opinion, its biggest attraction is its combination of steady cash flows and reliable dividend income. While it’s unlikely to deliver explosive growth like some AI-related technology stocks, investors seeking reliability might find its business model appealing.

Is now the time to think bigger about a Stocks and Shares ISA?

An ISA offers tax-efficient growth, flexibility, and the opportunity to build wealth without capital gains or dividend tax liabilities. Even relatively modest sums can potentially compound into surprisingly large amounts over a decade or more.

The numbers get even more appealing if fresh cash is contributed during working years. For instance, let’s assume the investor above makes one change to the listed assumptions. This time, they add and invest an additional £3,000 a year.

After 10 years, I calculate the investor could have a total pot worth around £98,213.

I think investors could be underestimating how powerful the effects of modest investments combined with the magic of compounding can be. Patience and regular contributions could significantly strengthen retirement finances.

In addition to the likes of National Grid, owning a selection of quality growth shares could significantly boost annual portfolio returns. For instance, Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) have respectively returned 26% and 29% annually over the past decade.

All things considered, I think the real question isn’t whether a Stocks and Shares ISA can help build wealth. It’s whether investors are making the most of the years before retirement. And if not, what opportunities could they be overlooking today?

Should you invest £5,000 in National Grid 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 National Grid Plc made the list?

Harshil Patel owns shares in Apple and Alphabet.

The post How much could a £25,362 Stocks and Shares ISA be worth in 10 years? appeared first on The Twelfth Magpie.

More reading

• Here’s how £500 a month in a passive income portfolio could grow to £87,547
• 2 high-yield FTSE 100 shares to consider in a Stocks & Shares ISA!
• Down 15%! Is National Grid’s share price really a bargain right now?
• 3 British dividend stocks to consider for passive income this summer
• 2 juicy income shares with big exposure to AI

Dividend shares are an excellent way to earn passive income. That’s especially the case when held in a Stocks and Shares ISA, as dividend taxes don’t apply.

The FTSE 100 is home to many world-class, established income shares. For instance, Aviva (LSE:AV.) currently offers a chunky 6.5% dividend yield.

If an ISA consisted solely of Aviva shares, how big would it need to be to earn £20k a year in dividends? Let’s crunch some numbers.

My trusty calculator tells me it would to be worth a whopping £308k to achieve that target in 2026/27.

It’s a sizeable sum to many. That said, there is a far cheaper way to reach this passive income goal.

The magic of dividend shares comes from income that grows, reinvestment of dividends, and allowing time to do much of the hard work.

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.

Path to a five-figure passive income

Consider this example. An investor buys £5,000 of Aviva shares at the start of every year. It has a long history of increasing dividends and has a stated mid-single-digit policy.

Conservatively, we can assume payments rise by 5% a year. Let’s assume a starting yield of 6.5%, and all dividends will be reinvested inside an ISA. To be extra-conservative, let’s also assume its share price doesn’t grow over time.

If an investor does this consistently for 15 years, they would have added £75,000 to the ISA. But the portfolio would be worth £176,946. In addition, it would be throwing off £20,176 in dividends. That’s over £1,680 a month in passive income.

A solid underlying business

Note that there’s more to dividend shares than just dividends. Dividends are typically paid from earnings, so a solid underlying business is important.

Aviva’s operating profits surged 25% to £2.2b in 2025. The 2026 targets were hit a year early, and management launched a £350m share buyback programme.

Things are looking good for this London-based insurer. It’s a capital-light business and benefits from a rock-solid balance sheet.

And the bigger picture is that it benefits from an ageing population, wealth growth, and AI-driven efficiencies across its businesses.

For patient investors, I think it could look compelling.

Diversification is wise

But bear in mind that even reliable dividend shares can face shocks. A prolonged weak economic cycle could slow earnings. A sharp change in interest rates could impact many of Aviva’s business areas. And regulatory changes to pensions and insurance products can requirement adjustments.

Dividends aren’t guaranteed, and it’s also why an investor might consider diversifying across several income shares. The FTSE 100 is home to several excellent options and spreading investment across a few from different industries avoids putting all eggs in one basket.

As I like to say, there’s plenty of fish in the Footsie.

The post How much do you really need in an ISA to earn a £20,000 passive income appeared first on The Twelfth Magpie.

More reading

• How many Aviva shares would I need for a £5,000 second income?
• How much second income could a £20k Stocks and Shares ISA started now earn per year?
• £12k invested in a Stocks and Shares ISA 10 years ago is now worth…
• I’m looking for the FTSE 100’s best value stocks to buy in July. Have I found them?
• 2 FTSE 100 dividend shares I own for long-term passive income!

The Motley Fool UK has no position in any of the shares mentioned. Harshil Patel 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.

It’s nearly that time of year again. In addition to an Easter egg or two, I’ll be looking forward to the start of the new Stocks and Shares ISA season. This year I’m focussing on dividends.

Dividends are an excellent way to earn passive income, in my opinion. But how much is really needed to earn £2,000 a month?

Well, it depends. If an investor wants income soon, my trusty calculator tells me that they would require between £300,000 and £600,000. But why the big range?

That’s because it really depends on the dividend yield. At a 4% yield, the investor would need £600k, but at a 9% yield, they would only need £300k.

Many income funds deliver yields between 4% and 5%. That said, savvy stockpickers could pick up several FTSE 100 dividend shares yielding over 6%.

A smarter way

Either way, it’s a sizeable pot. A smarter way would be to plan ahead. Instead of targeting passive income in 2026, an investor could build income over time with far less upfront cash.

The way to do this is by owning dividend growth shares, and reinvesting dividends to buy more shares. In turn, these generate more dividends, which buy more shares. This snowball effect is a powerful way to accelerate investment growth.

Many reliable dividend shares are from solid FTSE 100 companies. Enter Legal & General (LSE: LGEN), the company that quietly powers pensions, life insurance, and asset management for millions.

It has reliably paid dividends to shareholders for decades. And in the vast majority of those years it managed to raise its dividend payment.

Right now, it offers a chunky 8.9% dividend yield. That’s the largest yield in the FTSE 100. It has also committed to ongoing dividend increases.  

A top FTSE 100 dividend share

Legal & General should benefit from long-term trends over the coming years. For instance, ageing populations should drive demand for its retirement solutions.

Of course, even the most solid dividend shares aren’t risk-free. If the economy experiences an extended period of weakness, it could put pressure on earnings. The recent dip in its share price reflects short-term disappointment over a profit miss and market jitters from the war in the middle east.

Maximising a Stocks and Shares ISA

Going back to how much an investor would need to target £2k a month of income, consider this illustration.

Assume they invested £20,000 a year in Legal & General shares with dividends reinvested and growing at 5% a year. My trusty spreadsheet tells me it would take just eight years to blow past the income target.

I calculate by the end of year eight, the portfolio value would be worth £264,769 and annual dividend income would be £29,467. But here’s the most interesting part. The investor would only have put in £160,000. A far cry from the £600k mentioned earlier.

Personally, I prefer to own a selection of dividend shares rather than just one so I’m not putting all my eggs in one basket.

But, there you have it. Regular investments into a Stocks and Shares ISA, a bit of patience, and a steady-as-she-goes company could be enough to wave goodbye to the 9-to-5.

The post How much do you need in a Stocks and Shares ISA to target £2,000 a month of passive income? appeared first on The Twelfth Magpie.

More reading

• Can someone put money in the stock market, quit work, and live off the passive income instead?
• With a 7.5% yield and P/E of just 12.4, is now the best time to buy Legal & General shares?
• This income stock could turn £10,000 into £20,610 within 10 years
• This FTSE 100 share pays passive income of 7.5% a year!
• Why ultra-high-yielding Legal & General shares are even better than I thought!

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.

Gold and silver prices have been soaring higher in recent months. Gold hit record highs over $5,500 per ounce and silver soared past $100 per ounce for the first time.

Enter FTSE 100 miner, Fresnillo (LSE:FRES). This mining giant digs up gold and silver, mainly in Mexico. Over the past year, its share price rocketed higher by 430%. That’s insanely good for a FTSE 100 share as the average for the index was around 22%.

Over the past five years, it has even beaten Rolls-Royce shares, which might seem hard to believe given that company’s post-pandemic strength.

FTSE 100 top performer

But can Fresnillo continue its meteoric rise in 2026?

Well, that depends on whether demand for gold and silver continues to climb. Rising gold prices have been driven by central banks snapping up the shiny metal, a weaker US dollar, and geopolitical tensions.

As for silver, it tends to move even more dramatically than gold. Some even call it ‘gold on steroids’. Like gold, silver is also seen as a safe haven in times of uncertainty. But in contrast, it has strong industrial uses too. For instance, it’s used in solar panels, electric vehicles, and AI data centres. All of which are expected to be high-growth sectors for the coming years.

What could slow the precious metals train?

In the past, when precious metals have seen explosive rallies, they could become quite volatile. Prices can swing wildly in both directions. They could also experience profit-taking in the short term.

That said, many experts expect medium- to long-term trends to push prices upward. Many major banking institutions target over $6,000 for gold and over $150 for silver this year.

As for Fresnillo, its direct tie to commodity supercycles like the one we could be experiencing now make it a standout for continued outperformance in 2026. It delivered robust 2025 results, but recent downward revisions to 2026 output have introduced some caution.

Leveraged play on gold and silver

As a low-cost operator, it remains competitive and offers profit margin resilience and strong cash-flow generation. A return on capital employed of over 17% suggests good use of capital. And a forward price-to-earnings ratio of 30 is in line with historical averages during bull cycles. As a bonus, Fresnillo also offers a 2% dividend yield.

But bear in mind, if prices for precious metals reverse for an extended period, Fresnillo shares could suffer in the near term.

That’s why I would only own it as part of a balanced and diversified portfolio. FTSE 100 shares are typically large, mature, and established companies that don’t often witness triple-digit returns.

But now and again, there are outliers. In the past year, there were six FTSE 100 shares that resulted in returns of over 100%.

Whether we’ll see a repeat in 2026 is unknowable, but certainly possible. That said, after any near-term volatility in precious metals prices, I think long-term trends will continue to support them. That should bode well for Fresnillo in 2026.

The post Here’s a FTSE 100 share that I think could beat Rolls-Royce in 2026 appeared first on The Twelfth Magpie.

More reading

• Down 35%, is this FTSE 100 gold stock worth a serious look?
• Precious metals are starting to rally again! This FTSE stock could soar

The Motley Fool UK has recommended Fresnillo Plc and Rolls-Royce Plc. 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.

Let’s be real. £2,000 a month in passive income is a nice chunk of change. In my opinion, one of the best ways to earn passive income is from dividends.

But how much would an investor realistically need to save to earn £24k a year? Well, that depends. If the investor wanted to start earning this passive income immediately, then my trusty calculator tells me they would require a £600,000 pot.

But hold on a minute. £600k?! Now that’s a hefty chunk not typically found down the back of a sofa.

Passive income tricks from dividends

Thankfully there is a smarter way to earn a substantial passive income. And it involves investing a lot less hard-earned money.

So what’s the catch? Well, the trade-off is that the investor will need to wait a bit. Delayed gratification, but one that I think is worth the wait.

There are some nifty tricks that allow investors to invest less money if they’re prepared to wait 10-15 years.

For instance, reinvesting dividends can boost investments over time through the power of compounding. Dividend cash buys more shares, which generates more dividends, which buys more shares. And so on. This snowball effect is a powerful way to accelerate investment growth.

Secondly, for the same reason, adding fresh money every year can also have an outsized impact on the final investment income.

Dividends that shine

There are plenty of FTSE 100 shares that have a long history of paying reliable dividends.

Enter National Grid (LSE:NG.), the company that keeps the lights on for the entire country. It has reliably paid dividends to shareholders every year for over 30 years. And in around 80% of those years, it managed to raise its dividend payment.

Right now, it offers a 4.2% dividend yield, and has committed to inflation-linked increases over the coming years.

National Grid not only offers an above-average dividend yield, but also reliable dividend growth. Of course, nothing is risk-free though. The government could decide to get involved in the electricity business, or Ofgem could slash allowed returns. Either could impact dividends in the future so it pays to keep an eye open.

Crunching the numbers

Using my trusty calculator again, I’ve crunched some numbers to show how an investor could earn £2k a month in passive income. Here’s the plan:

• Start with £50,000 invested in National Grid shares
• Buy £6,400 of more shares every year.
• Reinvest the dividends every year to buy more shares.

Assume the annual dividends keep growing by 5% a year, which has roughly been the case historically. And assume the share price doesn’t grow, just to be conservative.

After 15 years, they should have around 24500 shares, by which point it should produce 98p per share in dividends. That equates to over £24k a year.

In total they would be investing £146,000 over that period. But it sure is a far cry from £600k!

So, there you have it: regular investments, a bit of patience, and an extremely dull company could be enough to wave goodbye to the 9-to-5. If you prefer something a little less dull, there are plenty more fish in the Footsie.

The post How much do you need in an ISA to target £2,000 a month of passive income appeared first on The Twelfth Magpie.

More reading

• Here’s how £500 a month in a passive income portfolio could grow to £87,547
• 2 high-yield FTSE 100 shares to consider in a Stocks & Shares ISA!
• Down 15%! Is National Grid’s share price really a bargain right now?
• 3 British dividend stocks to consider for passive income this summer
• How much could a £25,362 Stocks and Shares ISA be worth in 10 years?

The Motley Fool UK has recommended National Grid Plc. 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.

It might sound strange to SIPP lovers, but a Stocks and Shares ISA is my favourite tax wrapper. It’s free from capital gains and dividend taxes, and I can access it at any time. That makes it more flexible than my SIPP.

It might also be of interest to an investor aiming to replace their salary one day. But how realistic is it to use stock-based investments to ‘earn’ a living? Let’s crunch some numbers.

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.

Replacing a job with a Stocks and Shares ISA

According to the Office for National Statistics, the average full-time salary in the UK is £39,039. If an investor also factors in a State Pension income of around £12k, they will need an income of £27k from a Stocks and Shares ISA.

The widely-used 4% rule suggests that retirees can safely withdraw 4% of their portfolio for at least 30 years.

Using this withdrawal rate, I calculate an investor would need a pot worth £676,650.

There are a few ways to target such a sum. These levers consist of time, investment return and pounds invested. For instance, such a sum could be achieved by investing £1,000 a month for 20 years, at the average yearly investment return of 10%.

The less someone invest, the more time is needed. Alternatively, it could also be achieved with £500 a month, for 15 years, but at a much larger (and much less likely) 25% annual return.

It’s certainly a bigger challenge. But to target such a large performance, investors would need to search for individual shares that could beat the market over time.

Looking at past winners

One such past winner is fantasy miniatures business Games Workshop. It has managed to grow its share price by 30% a year over the past 15 years. And that’s just one example.

But how to find these top-performing shares? Well, the first thing to note is that Games Workshop was a much smaller company back then. Valued at £130m, it would have been classed as small-cap share.

Smaller companies can often grow much faster than larger ones. But bear in mind that they can carry greater risk and can often be more volatile.

A tiny titan that could boost ISA returns

Today, MS International (LSE:MSI) has a market capitalisation of £257m, and mainly operates in defence and security markets. It’s not widely talked about, but for investors looking for undiscovered gems, that’s a good thing.

This small business has delivered exceptional earnings growth of 53% annually over the past five years. Much of that was driven by US defence contracts. In fact, just recently it announced a $42m contract with the US Navy, which should boost sales significantly.

MS should be supported by rising defence spending globally. At the 2025 NATO Summit, all 32 members pledged to allocate 5% of GDP annually by 2035 towards defence and security spending.  

That said, it could take some of these countries a few years to achieve these targets. Also bear in mind that government contracts can often face delays and budget cuts over time. And changing governments can alter priorities.  

I like its 29% return on capital employed as it shows an efficient use of capital. And despite having many growth characteristics, it still offers a reliable 2.1% dividend yield. Overall, I’d call it a high-quality business that’s available at an attractive valuation. And owning shares just like this one could play a big part in building a sufficiently large Stocks and Shares ISA.

The post How much do you actually need in a Stocks and Shares ISA to replace your full-time salary? appeared first on The Twelfth Magpie.

More reading

• Which offers better value, Rolls-Royce or Lloyds shares?
• By mid-2027, analysts expect £5,000 in BAE Systems shares to be worth…
• Down 6% since January, can Sir Dave still rescue Diageo’s shares?
• 3 second-income shares tipped to grow dividends by 10%-20% over the next 3 years
• By July 2027, Aston Martin shares could turn £9,999 into…

The Motley Fool UK has recommended Games Workshop Group Plc. 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.

Dividend shares are an excellent way to earn passive income, in my opinion. Investors can build up a Self-Invested Personal Pension (SIPP) during working years, then withdraw regular dividend income once they turn 55. Although, this pension age is expected to rise over the coming years.

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.

Some companies distribute a portion of their profits to shareholders in the form of dividends. Typically, this occurs quarterly or semi-annually. It’s a reasonable way to earn passive income as investors can receive regular dividends without having to sell any shares.

Also, dividend investors can ignore the daily ups and downs of share prices. The best dividend shares have a strong track record spanning many decades.

This stock pays a 9% yield

One example of such a share is Legal & General (LSE:LGEN). Its shares are attractive to income investors due to its 9% dividend yield. This is much greater than the FTSE 100 average of around 3%–4%.

Often, though, a high yield might not be the most reliable. But L&G has a strong record, supported by robust cash flows. In fact, it has paid a dividend every year for at least 35 consecutive years. It has also managed to increase its payout annually for the past 15 years.

Its revenue streams are diverse and include insurance, investment management, and retirement products and services. This spread of business areas provides resilience.

Bear in mind that L&G would be considered a defensive play. And although it has been an excellent source of dividends, its share price has lagged the average FTSE 100 share. And although it’s an excellent source of dividend income, investors might want to consider pairing it with more growth-oriented shares. Particularly if retirement age is far into the future.

£1,500 in passive income

To target £1,500 a month of passive income, that equates to £18,000 a year. If an investor owns dividend shares like L&G that offer a 9% yield, I calculate that they would need a total SIPP worth £200,000.

But as a 9% yield is at the higher end of the range, so crunching the numbers based on a 6% yield would be more conservative. Note that if the SIPP earns 6% a year in dividends, the pot would need to be £300,000.

This might look like a substantial sum, but by investing regular sums over many years it can become a lot more manageable.

For instance, including dividends and capital growth, the long-term average stock market return is around 8% a year. Given this rate of return, I calculate that an investor could build a pot worth £300,000 by regularly investing £345 a month for 25 years.

Don’t forget about inflation

Also, note that a £1,500 a month income in the future will likely not provide the same value as £1,500 today. The price of goods, services, and living costs are likely to rise. That’s why it’s important to consider the effects of inflation.

Overall, an investor looking for passive retirement income in the future should consider a diversified portfolio of both dividend and growth shares. Starting as early as possible should also help in reducing the burden of building a sizeable pot.

The post How much do you need in a SIPP to target a £1500 monthly passive income? appeared first on The Twelfth Magpie.

More reading

• Can someone put money in the stock market, quit work, and live off the passive income instead?
• With a 7.5% yield and P/E of just 12.4, is now the best time to buy Legal & General shares?
• This income stock could turn £10,000 into £20,610 within 10 years
• This FTSE 100 share pays passive income of 7.5% a year!
• Why ultra-high-yielding Legal & General shares are even better than I thought!

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.