If I’m looking for a passive income of £10k a year, there’s one thing I need to be clear about up front. I won’t be trying any get-rich-quick schemes.
But I do think it’s possible to reach a target like this quicker than people might think, using a Stocks and Shares ISA. Maybe even a lot quicker.
Still, let’s look at the idea of finding short cuts via the occasional multi-bagger. It’s not something I’d ever plan for, but it’s nice if it happens.
Boom and bust
We’ve had a few stocks in the past few years that look like they made some people a lot of money. In each case it was a small-cap, and the share price took off like a rocket.
One stock soared nearly 1,000-fold, which could have made that £10k income target in just a few weeks. But only for those lucky enough to sell at the top, as it quickly plummeted.
There was an almost certain pump-and-dump scam going on. But I won’t name the stock, as the company itself had nothing to do with it.
Short-term gains
Someone asked me an interesting question a few weeks ago. They know I invest for the long term, and mainly for dividends. But they wanted to know how I’d go about it if I wanted to make some short-term profits from the stock market.
So which stocks would I buy, and how would I choose them? My answer was simple. I’ve no idea. And that’s why I don’t try it.
I suggested throwing darts at the Financial Times and buying whatever companies they hit.
The long term
Anyway, back to the long term, which might not be so long. The average annual Stocks and Shares ISA return over the past 10 years comes in at 9.6%. Isn’t that remarkable?
That’s a decade that saw a global pandemic and a stock market crash. Yet we still had big profits from shares.
This seems exceptional though. And my thought is that we’re more likely to see something around 7% a year as a long-term average.
How much cash?
To get £10k a year at that 7% rate, we’d need to build up a pot a bit over £140k. So let’s say £145k to give us a bit of breathing space.
Someone who could use up their whole ISA allowance (currently £20k a year) could get there in only six years.
Now, I don’t have that much to invest. But £10k invested each year could reach the goal in just over 10 years.
And then, an investor with just £5k a year could get there in about 16 years. That’s £417 a month.
Here’s my take
These are just some ‘what if?’ numbers, to give us an idea of what might be possible.
There’s no certainty with shares, and those wanting guaranteed returns might go for a Cash ISA. But that could take a lot longer.
For me, I just invest as much as I can and hope I’ll be pleasantly surprised at the end of it.
