If you have £20,000 in savings sitting idle, you might be wondering how to make it work harder for you. While interest rates might offer a small return, there’s a more profitable option for those willing to be patient: investing in blue-chip stocks of well-established companies. With a careful approach, this strategy can generate a second income that grows over time. Here’s how £20,000 could be invested to target an average monthly income of £ 913 each month.
Sticking to a Simple and Patient Approach
Before diving into the details, it is essential to set clear expectations. The projected monthly payout of £913 comes after 25 years. This approach is designed for patient investors who are committed to the long term. If you’re looking for a quicker turnaround, there are faster options available, but they may result in a lower monthly payout.
Investing in established, proven companies typically requires minimal hands-on management after your initial investment. Once the money is invested, the goal is to allow it to grow through dividend income and capital gains. Over time, these investments have the potential to deliver consistent payouts, helping to build a second income stream.
Doing the Maths: The Power of Compound Growth
Let’s break it down with some numbers. If you invest £20,000 and achieve an 8% compound annual growth rate (CAGR) over the next 25 years, the investment will grow to approximately £137,000. At an 8% yearly yield, this would provide a monthly payout of £913.
It is essential to recognise that the 8% CAGR can result from either a rise in stock prices or dividend payments. However, stock prices can fluctuate, and dividends are never guaranteed. This means that choosing the right companies is crucial to ensure your investment performs well over time.
In today’s market, an 8% CAGR is realistic, especially when sticking to proven FTSE 100 blue-chip companies. These companies have a proven track record of strong performance, providing a solid foundation for long-term growth.
One Share to Consider: Legal & General
One company worth considering for your second income investment is Legal & General (LSE: LGEN). This FTSE 100 financial services giant has built a strong reputation over the years and operates in a market with high demand that is expected to remain resilient in the long run.
Legal & General has a solid track record of profitability and is well-established with a large customer base. Despite recent declines in profits, the company continues to pay a generous dividend, yielding around 9%. While its future growth may be slower due to the sale of a large American business, Legal & General remains a reliable choice for investors seeking steady returns.
The Risk Factor: Potential Challenges
While Legal & General offers strong prospects, it is essential to consider some risks associated with investing in individual stocks. Share prices can be volatile, and dividends are subject to change. The company’s decision to sell part of its American business could potentially affect profits, which may impact the dividend payout. However, Legal & General’s long-term stability and established reputation make it a worthy candidate for those seeking passive income through dividends.
Moving from Dream to Action
Turning the idea of earning a second income into reality requires more than just wishful thinking – it requires action! The first step is to open a share-dealing account or a Stocks and Shares ISA where you can invest your £20,000. Once you have set up your account, you can begin researching and selecting shares to purchase.
Investing in a diverse range of shares is a smart strategy. By spreading your investments across different companies, you reduce the risk that any one investment will perform poorly. Over time, with careful selection, these shares can generate a solid second income.
What the Experts Say
When it comes to investing, it’s always helpful to seek advice from experts. Mark Rogers, the head of The Motley Fool’s investing team, regularly provides stock recommendations to members. His expertise in identifying standout stocks has helped countless investors achieve success.
Currently, Mark has highlighted six standout stocks that investors should consider. Curious if Legal & General made the list? It may be worth checking out his top stock picks to see if this company is part of the recommended portfolio.
Conclusion
Investing £20,000 in blue-chip stocks with a long-term, patient approach can be a great way to build a second income stream. By targeting an 8% compound annual growth rate, you could potentially earn £913 a month in passive income after 25 years. While investing always carries some risk, sticking to well-established companies like Legal & General could help you achieve your financial goals over time.