Like lots of people, I am attracted by the idea of earning more money without working longer hours. One way I earn second income is by owning shares that pay me dividends.
That might seem complicated. In fact, when it comes to earning a second income from the stock market, my approach is the opposite. I aim to keep things simple.
I could put such a plan into action today, beginning with just £2.
Keep it simple!
The stock market can be very complicated. Many investors lose money rather than make it, because they try to make fancy, complicated moves or invest in businesses they do not understand.
By contrast, my approach is more like that of billionaire investor Warren Buffett.
Buffett only invests in industries he understands. If he sees red flags that alarm him about a company’s business, he often just does not invest. He is willing to forego large possible gains to limit the risk of loss.
On top of that, Buffett buys shares with the hope that he can then more or less forget about them for decades, while still earning money from them in the form of dividends.
Quality and value
Earning a second income like that appeals to me. So I stick to buying shares in businesses I feel comfortable I understand.
Making money in business is not just about what you buy or sell – it is also about the price at which you do that.
So, as well as buying into great companies, I focus on buying when I think they are attractively valued. Right now, some leading FTSE 100 companies have dividend yields of 7% or 8%, from Legal & General to British American Tobacco. I think this can be a good market in which to build a second income.
Getting going
I own both of those shares.
Buying shares takes money. Rather than aiming for some ambitious target, again my approach to building a second income involves keeping things simple.
Putting just £2 a day aside would give me £730 a year to invest. At a yield of 7%, for example, that could earn me an annual second income of £51.
If I hang onto the shares, I could hopefully earn dividends for years to come, as well as using my ongoing daily savings to buy more and more shares. Over time, hopefully I could build a growing second income stream.
I would start by setting up a share-dealing account or Stocks and Shares ISA, putting aside £2 a day from today onwards and hunting for brilliant companies trading at attractive share prices.
All of that is something I could do without involving other people – starting immediately. My financial destiny rests in my own hands!
