As we start spring, it can be a great time to start with new financial goals. Even if I had £0 in my savings account to start the month, it’s hardly out of the question to build a passive income portfolio that can help to support me further down the line. Here’s my strategy to achieve this.
Building blocks
To begin with, I have to start with changing my habits to leave some funds free each month to invest. It’s not a problem I can put away for another day. I can cut back on my social spending. Alternatively, I can try to find a new side hustle to increase my income.
After I’ve figured out exactly how much money I can carve out going forward, the next focus is my end goal. For the purpose of assuming I’m starting from the beginning, a target I’d have is making £10k a year from income. Obviously, the time frame needed to build up to this will depend on how much I can afford to invest, so this might need to be tweaked.
One point of the strategy that should remain the same is how I’m going to use stocks to achieve my aim. I’m going to use the bulk of my money to buy dividend stocks, to benefit from the income payments. Yet I’m also going to allocate a small portion to growth stocks. Even though these won’t pay me income, the share price appreciation could be large in years to come. By trimming some of the profit further down the line, this can act as income too.
Here’s one I made earlier
A good example of a stock that I own that fits the bill is Barclays (LSE:BARC). This is a mix of a dividend and growth share that should continue to reap yield for me in years to come.
First let’s run through the dividend side. At the moment the yield is 3.93%, which is above the FTSE 100 average, although isn’t ultra high. The nice thing here is that as a mature bank, it has a long history of paying out income. Apart from the blip in the pandemic, it has been paying out income consistently since 2009.
In terms of share price gains, the stock is up 27% over the past year. These gains have been driven by the push from the CEO to make the bank a more efficient and profitable organisation. Sure, this includes job cuts, more of which were announced this week. But in the long term, I see this as a positive for the share price.
A risk is that Barclays underperforms more global peers, particularly the larger American banks. Yet there’s plenty of room in the market for multiple banks to all make generous profits. The sector will never become an oligopoly due to tight regulations.
Checking the numbers
If I included stocks like Barclays in my portfolio, I could aim for a dividend return of 4% plus a growth rate of an additional 4%. If I assumed a monthly investment of £400 that generated 8% per year, I’d have a pot worth just under £125k after year 14. From then on, I could hope to make £10k the following year.
