How I’d invest £1,000 a month to aim for a passive income of £45,000 a year
I think the opportunities for building a passive income pot on the stock market might have never been better than they are today.
If I were younger and starting again, I’d do things a bit, though not a lot, differently. Mostly, I’d stick with a diversified portfolio, hold for decades, and reinvest my dividends.
But I might take more risk with a portion of my cash.
Chips on the side
Nvidia (NASDAQ: NVDA), today, reminds me of high-tech growth stock opportunities I missed in the past. Nividia is up a whopping 2,600% in the past five years.
If I’d invested just £200 a month for a year prior to that, I could now be sitting on something around £62,400. And if I cashed that in and transfered it to a range of FTSE shares?
The UK stock market has made total returns of around 7% in the long term, so just that one well-timed investment of £2,400 could be enough to now get me about £4,300 in passive income each year.
That, of course, tells me nothing about whether I should buy Nvidia shares today, of course.
The one that got away
It reminds me of another great Nasdaq stock I missed out on, Amazon.com (NASDAQ: AMZN).
I remember looking at Amazon in December 1999 and thinking it was heading for a crash, and I shouldn’t touch it with a bargepole.
I watched the dot com bubble deflate, smug in the knowledge that I hadn’t lost a single penny in it.
But what’s happened to Amazon since then? What if I’d I bought even at the peak in 1999, at the worst possible time? Well, if I’d held on, by today my money could have multiplied 35-fold.
And if I’d got in near the bottom of the crash in 2000? I’d be up around 600-fold. That’s how good I am at avoiding sure-fire losses in bubbles about to burst.
Spill the beans
So, what’s this modestly different strategy I’d go for if I had my time again?
It’s to put 80% of my investment cash into my favourite, boring, stocks. And let’s assume I could equal the UK average of about 7% per year.
And then use the other 20% to chase Nasdaq growth stocks. If I achieved the Nasdaq’s total returns of the past 35 years, I might get around 14% per year on average.
With £1,000 a month for 20 years, the 80% of my cash in UK stocks could grow to £408,000. And the 20% in the Nasdaq could reach £235,000.
And the lot then moved to the London stock exchange could net me my £45,000 per year returns at 7%.
Any danger signs?
Isn’t this a high-risk strategy? Well, yes, I can’t deny that. Those past high returns might well not happen again. But I’d still only be going for the big risks with 20% of my money.
And here’s an interesting observation…
Suppose I’d split £10,000 across 10 high-risk growth stocks five years ago. One was Nvidia, and the other nine all went bust and wiped me out. I’d still £26,000 today.
The post How I’d invest £1,000 a month to aim for a passive income of £45,000 a year appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Nvidia. 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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