No money in the bank? Here’s how I’d aim for £1,113 of monthly passive income as quickly as possible

Millions of us invest for passive income, but just how possible is it when we’re starting with no money in the bank? Dr James Fox explains.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young brown woman delighted with what she sees on her screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are several ways to earn a passive income. Many Britons have gone down the buy-to-let route, and personally I’m not a huge fan of it. It requires plenty of capital up front and the returns really aren’t much to shout about.

Unsurprisingly, I prefer to invest in stocks and shares. And that’s because it’s possible start with nothing and to make sizeable returns just by investing wisely.

How it works

If I’m starting with no money at all, I need to open an investment account and make a commitment to invest a proportion of my salary each month. These days we can start with as little as £50 a month. And while that might not sounds like much, it can add up over time.

However, if I could afford a slightly larger figure, say £250 a month, I could really propel my wealth forward and achieve my passive income goals much sooner.

There are then two variables. The first is time. The longer I invest for, the faster my portfolio will grow and the more money I’ll have in the long run. As we can see below, the impact of compounding is huge.

And the second variable is the returns we can achieve. In other words, the success of our investments. A good investor may aim to see their investments grow by 10% a year. But we can do much better. For instance, my daughter’s portfolio is up 32% since I started it five months ago.

Created at thecalculatorsite.com

In the above example, I’ve been very bold. I’m aiming to average a 15% annualised return — as I do with my daughter’s portfolio. And here we can see that £250 a month has been transformed into £170,000 in just 15 years. If this were invested in stocks averaging an 8% yield, like Legal & General does today, I would be earnings £1,133 a month!

Achieving growth

The big question is how do I achieve an annualised return of 15%? Well, I need to start by recognising that if I invest poorly I could lose money. As such, I have a data-driven approach to help me invest wisely (although success isn’t guaranteed).

One company I’m continuing to invest in is Li Auto (NASDAQ:LI). The Chinese new energy vehicle (NEV) manufacturer is the first of its peer group to achieve profitability and its expected to grow earnings at more than 20% a year over the next three-to-five years.

That’s impressive growth, but it also means that Li’s all-important price-to-earnings-to-growth ratio is under one (0.8) indicating that the firm may be significantly undervalued.

Li has carved out a good chunk of the Chinese market and has earned itself a following through its focus on EREVs (Extended Range Electric Vehicles). The L7, L8, and L9, all have combustion engines and electric engines, providing some staggering ranges — in excess of 1,000km.

I’m wary that Chinese companies may struggle to make progress outside of China, however, I still think the future is bright for Li. It’s got sector-beating margins, and there’s a real buzz about the brand.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Li Auto Inc. 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.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »