How I’d invest £500 a month to achieve a £10,000 passive income per annum

There’s a treasure trove of shares out there and some could reward a long-term investor like me with a good passive income for life.

Three generation happy family walking outdoors in park

Image source: Getty Images

£500 a month may not sound like much, but it’s £6,000 a year — or £120,000 over 20 years. And if it’s being invested sensibly in a Stocks and Shares ISA then my target of an annual £10,000 passive income could be achieved before the 20 years are up.

A prime example of the benefit of regular long-term investment is the FTSE 100 index. Launched in January 1984 with a starting value of 1,000 points, the FTSE 100 is currently hovering around and above 7,000. Plenty of us will benefit from this sevenfold FTSE 100 increase in retirement as pension funds have always been heavily invested in its blue-chip shares. But I’m looking at an additional £10,000 passive income on top of a state, or private, pension.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

An expanding profitable company will usually increase its dividend over time and, in normal market conditions, see its share price increase too. I also plan to reinvest dividends in new shares to help keep the growth going over the period. So I feel it’s not unreasonable to expect my invested £120,000 to increase in value to at least £200,000 over 20 years, and if this sum has a 5% dividend yield then it could provide me with the targeted £10,000 passive income per annum.

I have already bought two of the following stocks and will likely buy all three:

Okay, a life insurer and pensions specialist doesn’t sound exciting, but when I want excitement I might buy a penny-share mining stock. And in the long term, the odds are in favour of Legal and General outperforming the speculative stocks and rewarding me with a capital gain and high income. The company has three major positives in its favour as a solid long-term investment:

  • It provides products that are particularly suited to the UK’s growing population, which has a longer life expectancy than ever before;
  • It pays a big dividend – the yield is 7%;
  • The dividend usually increases year by year.

I think things look good for this company and I have bought some shares.

Diageo

This global drinks giant is continually expanding into new markets and increasing its revenues and market share. It owns established brands such as Guinness, Johnnie Walker and Gordon’s.

Diageo’s dividend continues to increase year by year. This is a high-quality stock and I am considering buying some shares.

Aviva

Life insurer Aviva has similar advantages to Legal and General, with a high dividend yield and an aging and growing population to tailor its products for. An additional potential bonus is that I think both of them have a better-than-average chance of being taken over. The British pound is very weak against the US dollar, and a large American company could snap these two up in a jiffy. The proceeds could then be invested in similar long-term buys in pursuit of my goal.

Of course, there is the risk that a high-quality stock can become a plodder or worse but, over 20 years, history shows us that the stock market rewards sensible long-term investment.

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Michael Wood-Wilson owns shares in Legal and General and Aviva. The Motley Fool UK has recommended Diageo. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

£10,000 invested in BT shares 10 years ago is now worth this much

It's painful to remember that BT shares reached over £10 at the peak of the dot com bubble in 1999.…

Read more »

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Investing Articles

Is now the time to buy bank shares?

Our writer considers whether bank shares could be a bargain buy for his portfolio right now -- or a potential…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

After steep falls, are Royal Mail shares a steal?

Royal Mail shares have more than halved since peaking a year ago. After months of steep falls, this popular stock…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

Dirt-cheap, 1 of my best stocks to buy also pays an above-average dividend!

This Fool has decided to buy the shares on his best stocks to buy now list with the shares looking…

Read more »

Light bulb with growing tree.
Investing Articles

The AFC share price just tanked! Is now the time to buy?

The AFC share price fell nearly 10% on Wednesday after the H1 revenue announcement. So, should I add this stock…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

These shares have been growing dividends for decades. I’d buy!

Our writer considers the merits for his portfolio of buying two shares with a track record of growing dividends.

Read more »

Close-up of British bank notes
Investing Articles

Is the M&G dividend yield heading to 10%?

As the M&G dividend yield heads towards double digits, out writer explains why he is considering buying more of the…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

3 top dividend shares to buy now

With weakness in the markets, I reckon it's a good time to search for top dividend shares to buy now.

Read more »