£15,000 in savings? Here’s how I’d aim for a regular £3,403 monthly passive income

A balanced portfolio of growth and dividend shares can over time deliver an outstanding passive income. This is what I’d do to try and accomplish this.

| 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.

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings

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.

I believe investing in UK shares is an excellent way to make a regular passive income.

Drawing up a winning investment strategy can take time to create and perfect. But come retirement, it can deliver terrific wealth as the dividends come flowing in.

In recent decades, the FTSE 100 and FTSE 250 have delivered average annual returns of 7.5% and 11% respectively. This is through a combination of healthy capital gains and dividend income.

Averaged out, the long-term return across these indexes comes out at an impressive 9.25%. This is the kind of return that could eventually provide investors with a very comfortable retirement.

Here’s how I’d invest to try and achieve this.

Reduce the tax burden

The first thing I’d do is open a tax-efficient investment account like an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP).

With a Stocks and Shares ISA, individuals can invest up to £20,000 in a tax year. A SIPP allows someone to invest 100% of their gross annual earnings, up to a limit of £60,000.

SIPPs also provide tax relief of at least 20%, rising for higher- and additional-rate taxpayers. While funds can’t be drawn down until the age of 55, this wouldn’t be an obstacle for someone who doesn’t plan to use it until retirement.

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.

Growth + income

The next thing I’d do is build a balanced portfolio of growth and dividend shares.

The latter can provide a steady stream of income that can then be reinvested in more stocks, growing my pie exponentially. The growth stocks I own — provided everything goes to plan — will experience share price increases that deliver healthy capital gains.

Some top UK shares potentially offer the best of both worlds. Here is one I already own in my portfolio.

Games master

Fantasy wargaming giant Games Workshop Group (LSE:GAW) is a share that’s delivered magnificent returns in recent decades.

Its share price has risen 1,730% since during the past 10 years alone. It has also paid some healthy dividends during that time (incidentally, its forward dividend yield is currently a market-beating 4.3%).

The FTSE 250 firm is best known for the Warhammer line of complex battle games. What’s not complicated, however, is the terrific money-making qualities of these products.

Games Workshop sells its products at huge margins to a large (and growing) global fanbase. It sets the standard in its field, and it is looking to licence its IP to take revenues to the next level.

To this end, it is now in talks with Amazon to bring its Warhammer: 40,000 universe to the big and small screens.

Sales may experience pressure during tough economic periods. But from a long-term perspective the future here is very bright.

Monthly top-ups

To take my returns to the next level, it’s also a good idea to add a monthly contribution to my ISA or SIPP after making my initial investment.

Let’s say that I invest £15,000 in a balanced portfolio of FTSE 100 and FTSE 250 shares. I’m talking about 10-15 different stocks so as to spread risk. We’ll also assume I spend an additional £300 a month.

Based on that 9.25% average annual return mentioned earlier, I could expect to make a massive £816,713 over 30 years. I could then draw 5% of this down a year for a yearly income of £40,836, which translates to £3,403 a month.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon and 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.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »