If I wanted to earn extra cash, I could use the stock market to make a second income almost instantly. Even if I had no investments, I could start the process today.
All I’d need to do is open a brokerage account online and buy a stock. Let’s say I picked Legal & General. It’s popular for its big dividend and I could buy a single share in it for £2.16 (ignoring trading fees).
Once I buy in, what happens? Well, the company will send cash dividends to my account. For Legal & General, that’s two payments a year. Its forward yield is 9.4%, so over the next 12 months, I’d expect about a 10th of my investment back. That’s my second income. Not bad.
And what I like about investing like this is that it doesn’t stop there. I can keep growing my income through reinvesting my returns and also from increased payouts from the company.
Peace of mind
For example, Legal & General’s 2024 and 2025 dividends are forecast to keep rising. As a percentage of today’s share price, it rises to 9.87% then 10.4%. This is typical for dividend-paying companies.
I’ll point out there are risks. The Covid crash in 2020 saw a lot of dividends get reduced or cancelled, for example. Investing like this has no guarantees.
But going back to my investment, I will say that I’ve not done much at this point. I’ve only bought one share for a couple of quid. I don’t need a trip to Specsavers to see that the second income isn’t going to be massive here. So what’s the next step?
Well, I like to frame it in terms of goals. For me, I invest for financial stability. I want the security and peace of mind that comes with that.
Say something were to happen and I couldn’t work, that would be a terrifying prospect. But if I had a steady stream of cash I could tap into, I could cover mortgage payments, or even replace my earnings. A second income could be life-changing.
With that goal in mind, I’d look to invest for the biggest income possible.
£11,268 a year?
Let’s say I can save £200 a month. In the grand scheme of things, that won’t get me far. After all, I could save it for 30 years and still only have £72,000. My second income would be pretty small.
But if I looked for quality stocks to invest in and grow my returns, I could aim for an average 8% return. Then the £200 a month would grow to £281,710 after 30 years.
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.
That sounds better all on its own. But it’s not guaranteed, of course. I have to accept that my investments might pay out less. That said, the second income potential is big. If I withdraw at 4%, I’d get £11,268 a year – completely tax-free if I use an ISA. And I could start withdrawing earlier if life-related issues pop up. That’s what I mean about financial stability.
