How I’d invest £99 a week to aim for a passive income of £94,095 a year for life

With as little as £99 every seven days, it’s possible to generate a sizeable passive income stream by investing in the stock market.

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Whenever I have spare cash, I invest in companies inside my Stocks and Shares ISA. Eventually, I’d like to live off the passive income generated from this portfolio.

However, this isn’t a get-rich-quick strategy. I’m going to have to be patient.

But the good news is that small amounts can add up to a surprisingly large amount, given enough time.

Should you invest £1,000 in Axon Enterprise right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 Axon Enterprise made the list?

See the 6 stocks

Passive investing

One of the simplest ways to build up a portfolio is through low-cost exchange-traded funds (ETFs). These allow people to invest in multiple stocks, bonds, property, and more, in one fell swoop.

Many UK investors gravitate toward the FTSE 100, known for its stability and generous dividends. The long-term annual average is around 8%.

However, it’s a fact that many of the world-changing firms are listed across the pond. Their products dominate our day-to-day lives, whether that’s iPhones (Apple), entertainment (Disney and Netflix), Facebook and Instagram (Meta Platforms), or Google search (Alphabet).

The S&P 500, with its significant exposure to technology stocks, has generated average returns of around 10% (including dividends).

Passive income potential

Let’s assume I invest passively in both indexes and the historical returns stay broadly the same (which isn’t guaranteed). So that’s 9%.

In this scenario, I’d end up with £1,159,308 after 35 years of investing just £99 a week (not including any platforms fees). And that’s starting from scratch!

At this point, I could employ the 4% withdrawal rule. This would see me drawing down £46,372 a year.

Active investing

Rather than passive investing, though, I’ve decided to take an active, stock-picking approach. This is riskier and more time-consuming, but the potential rewards are far greater.

Axon Enterprise (NASDAQ: AXON) is a great example of this. The stock is up almost 1,300% since my initial investment in 2017. It’s been an incredible long-term winner and is now at a record high.

Created with Highcharts 11.4.3Axon Enterprise PriceZoom1M3M6MYTD1Y5Y10YALL21 Sep 201921 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The firm has evolved from selling just Tasers into a mission-critical public safety technology platform. Today, its products range from body and vehicle cameras to cloud-based AI services and drones.

Many police officers in the US and UK now wear Axon’s body-cams (for accountability and evidence gathering) and Tasers (for safety and a less-lethal option than guns). This is contracted recurring revenue for Axon.

However, the wider international opportunity for both products remains absolutely massive. The market penetration rate in Europe, Asia, and Latin America is basically near 0%!

Source: Axon Enterprise

In Scotland, the police, lawyers, and the courts all now rely on Axon’s unified evidence database. The mind boggles at the growth potential if other countries (far larger than Scotland) also migrate their entire justice systems over to Axon’s platform.

Of course, all this opens up data privacy issues, which is a risk. And the stock is far from cheap nowadays.

Aiming for higher

I wish all my investments had generated Axon-like returns, but the truth is that I’ve bought some duds too.

However, the maths is skewed in my favour because the potential gains from top stocks are theoretically uncapped.

  • Axon Enterprise: +1,300% (so far)
  • Maximum loss from dud: -100%

Even if I only managed an extra 2% return on the S&P 500 (so, 12%), that’s enough for a £2,352,389 portfolio. In passive income terms, it’s equivalent to £94,095 a year.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ben McPoland has positions in Axon Enterprise. The Motley Fool UK has recommended Alphabet, Apple, Axon Enterprise, and Meta Platforms. 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.

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