An additional income can come from various sources, such as part-time jobs, freelance work, rental income, or side businesses. For me, however, investing is the best way to do it.
The extra income we earn from these investments can be used to improve our financial stability, meet specific financial goals, or just pay for that annual family holiday.
The thing is, with investing we can achieve our second income goals by starting with almost nothing at all. In some respects, it requires as much mental strength as it does financial commitment.
From humble beginnings
These days, we can starting investing with just a regular commitment — no starting capital — and as little as £30 a week, or £120 a month. There are two factors that have helped make this more achievable:
- Many investment platforms and brokerage services now offer low minimum investment amounts, allowing individuals to start investing with small sums of money.
- Platforms also provide low or no fee investment services. It pays to be wary of platforms with larger fees when investing small quantities.
- Some investment platforms offer fractional share investing, which allows investors to buy a portion of a share rather than a whole share.
That’s great because it opens up the world of investing to so many new people. The next step is understanding how £120 a month, or £1,440 a year, can turn into a sizeable supplementary income.
It takes time, and compound returns. Compound returns refer to the growth of an investment over time as earnings are reinvested year after year. When using a compound returns strategy, the returns (dividends or capital gains) I make are reinvested, and over time, those reinvested earnings also generate more returns.
As this process repeats, my investment can grow exponentially, allowing me to potentially earn more money than I initially put in. It’s like a snowball effect, where my money keeps growing as it rolls downhill, gathering more snow along the way.
Finally, I’ll want to be using an ISA account for this strategy. That’s because the tax-efficient wrapper provides me with the opportunity to earn tax free-income.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Remaining committed
Unfortunately, generating a sizeable additional income is not going to happen over night. It takes time and commitment. Discipline and self-control are key components of Stoicism, but maybe they should be considered important components of investing too. Sometimes, regularly contributing to an investment portfolio requires discipline in managing expenses and resisting the temptation of impulsive spending. It’s also about recognising that the longer I leave my portfolio without withdrawing from it, the faster it’ll grow.
Additional income
When investing in UK stocks, and doing it well, I could expect to achieve annualised returns between 6% and 12%. Of course, it’s not just about strategy, it’s about picking the right stocks as well. If I pick poorly, the value of my investments could fall instead of rise.
Here’s how big my additional income could be by investing just £120 a month.
| 6% returns | 8% returns | 10% returns | 12% returns | |
| 5 years | £440.66 | £615.23 | £805.75 | £1,013.65 |
| 10 years | £1,096.73 | £1,621.98 | £2,254.95 | £3,017.53 |
| 20 years | £3,175.32 | £5,356.49 | £8,562.39 | £13,271.58 |
| 30 years | £6,957.11 | £13,645.77 | £25,636.88 | £47,113.92 |
