I firmly believe that investing in stocks is an easy way to earn passive income for life. And I think it is possible to earn a steady income by investing as little as £5 a day.
Passive Income Strategy
The strategy I want to use to invest £5 a day is relatively simple. Today there are many online brokers that offer investors the opportunity to invest regularly without paying high commissions.
This is a fantastic development for investors like me who want to invest a small amount on a weekly basis.
My income strategy consists of two parts. The first part deals with mutual funds. Instead of putting together an entire portfolio of individual shares and stocks, I would build my passive income portfolio with a variety of income funds.
A good place to start is this City of London Investment Trust. This company has paid and increased its dividend every year for the last 55 years. The City of London Investment Trust owns a portfolio of high quality UK dividend stocks which allow me to gain exposure to these companies at the click of a button.
The downside of this approach is that I can’t choose the assets myself. Also, I have to pay an administration fee. This fee could reduce my earnings in the long run. Also, I may end up owning part of a company that I don’t necessarily want in my portfolio.
Despite these challenges, I would like to buy the shares today.
revenue and growth
In addition to buying an income mutual fund, I would also buy a basket of income stocks for my passive income portfolio.
Some of the companies that I would like to add to my portfolio that are quite defensive are BT and Severn Trent. Both offer or are expected to offer dividend yields in excess of 4%. They also have relatively predictable income streams from their defensive businesses. That means dividends are relatively safe and can still grow for years to come.
Of course, there is no guarantee that those dividends are certain. A sudden economic downturn could force BT and Severn Trent to reduce their distributions to investors. I’ll keep that in mind as we proceed. The more the geopolitical situation deteriorates around the world, the more likely it is that an economic recession will occur.
The bottom line
This is the strategy you would use to invest £5 a day and earn passive income for life. The companies and funds listed above could earn a 5% annual return on my money.
If I can invest £5 a day for 30 years, I reckon the return could lead to an annual passive income of around £5,000, assuming no dividend cuts in the meantime.
How I’d Try to Earn Passive Income for the Rest of My Life on £5 a Day was first featured in The Motley Fool Germany.
This article was written by Rupert Hargreaves and was published on Fool.com on 03/12/2022. It has been translated so that our German readers can join the discussion.
The Motley Fool UK does not own any of the above shares. Opinions about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we provide on our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that by consider a variety of ideas, we become better investors.
Motley Fool Germany 2022