A once-in-a-decade opportunity to create passive income from an empty portfolio!

Many of us invest for passive income. Of course, there are other ways to earn it. We could invest in housing, for example. But from experience, investing in stocks can be a more stable and lucrative strategy.

So here’s how I’d use the current situation to my advantage, even when starting with nothing.

Capitalising on fallen stocks

Anyone who’s been keeping an eye on British stocks in recent weeks will know the market isn’t performing well. But when stocks fall, there’s often opportunity. This time it’s no different.

Falling share prices provide an opportunity for investors to purchase stocks at lower prices. If they believe the market has overreacted, or that a company’s long-term prospects remain strong despite the temporary decline, they can buy stocks at a discount and potentially generate higher returns when the prices eventually recover.

The current downward pressure on the market is largely a result of extreme pessimism. That’s not just my take. Results have remained in tact and cash flows appear strong. We’re talking about broader concerns about the UK economy. There will need to be a catalyst for growth — an improving macroeconomic outlook — but I believe the market has overreacted.

And this is a useful starting point for passive income investors. As the stock price falls, the dividend yield increases, which can be attractive to income-focused investors seeking regular cash flow.

Starting with nothing

If I’m starting a portfolio with nothing, I need to commit to saving monthly, or even more frequently, if possible. This helps us develop a disciplined approach to investing, while benefitting from concepts like pound-cost-averaging and compound returns.

Obviously in an ideal world, when stocks are down and yields are up, I’d have cash on hand. However, it’s still a good starting point for a new investor, allowing them to buy in towards the lower end of the market.

This truly is a rare opportunity. As noted by my colleague Zaven Boyrazian, some 70 companies on the FTSE 350 are offering dividend yields in excess of 6%. That’s a huge number of firms offering previous unheard of yields.

In short, here’s the big plus. Although an investor starting with nothing might only be able to contribute £100 a month to their portfolio, they would be able to snap up some cut-price stocks with excellent yields, setting them on the path to building wealth and generating passive income.

Harnessing the power of compounding

Finally, as an investor starting their passive income journey today, I’d need to understand the power of compound returns. This is essentially an investment strategy that requires me to reinvest my returns — normally dividends — back into my portfolio every year. After the first year, I’d begin to earn interest on my interest. And the longer I leave it, the faster it grows. This really is a winning strategy.

But the strategy would be nothing without the right stock picks. And if I pick poorly, the value of my investments could go down as well as up. Despite this, the current environment really could kick-start a new portfolio. Here’s where £100 a month a strong 10% annualised return would take me.