One of my plans for 2023 is to give my passive income a boost. I think that New Year’s resolutions are best when they involve small, manageable changes, rather than dramatic shifts in behaviour.
That’s why my aim is to put aside just £2 per day to invest in a passive income portfolio. I think that’s something that I have a reasonable chance of sticking to.
I’m not expecting to retire next year using this plan. But I am expecting to start myself on the road to generating a meaningful boost to my monthly income.
I have a top five list of stocks to buy for my portfolio next year. But first of all, it’s worth stating what I’m looking for in a dividend stock.
Stocks vs. bonds
I think that 2023 could be a great time to get started. In the UK, interest rates have risen from 0.1% at the start of 2022 to 3.5% at the moment.
As a result, savings accounts and bonds are offering some higher returns than they were 12 months ago. A 10-year Gilt comes with a 3.5% yield.
But I’m not planning on using bonds to try and generate passive income. I think that there are some better opportunities in stocks.
I can definitely see the attraction of bonds at the moment. With a recession on the horizon, the security of a payment that is unlikely to fall is a significant positive.
In my view, though, a macroeconomic headwind is likely to prove temporary. Over time, I expect earnings to grow compared to their current levels.
As a result, I think that dividend stocks will offer a better passive income return than bonds in the long term. That’s why I plan to invest the £2 I save each day into stocks.
£2 per day
So what could I hope to achieve with just £2 per day? That’s not a big sum, so it seems unlikely that I’m going to be in a position to quit my job by the end of the year and live off my dividends.
Over time, though, £2 per day can turn into something pretty substantial. Exactly how much I can earn by investing £2 per day for 30 years depends on what kind of return I can make.
With share prices where they are, I think that a 5% dividend yield is achievable. If I saved £2 per day and compounded it at 5% for 30 years, I’d have an investment earning £2,300 in annual passive income.
Stocks like Legal & General, Realty Income, and Rio Tinto all have dividend yields above 5%. And if share prices continue to fall, then those yields will only increase.
If this happens, then my eventual passive income will be even higher. If I can average a 6% return, the passive income generated reaches £3,200 in the 30th year and 7% on average gets me to £4,567.
Passive income
Ultimately, the amount that I’ll make in passive income depends on fluctuations in the stock market. And there’s nothing I can do about that, so I’m better off focusing on what I can control.
The part of my plan that I can control involves saving £2 per day and investing it in good quality businesses. From there, I should do well enough whatever happens.
