When I was younger, the idea of buying stocks and getting money back from them seemed like black magic. It seemed hard to understand, so I avoided it for years and years. All the while, even the simplest investment in FTSE 100 shares could have been making me money.
Instead, I spent my excess cash on stupid stuff, things that I don’t even own anymore. That’s cash that could have been earning me an income the whole time. I’d guess this cost me in the tens of thousands if I were to crunch the numbers.
Let’s say I could jump back in time for a few minutes. Here are the seven things I’d tell my younger self to kick him into action and get him to start making big passive income from FTSE 100 shares.
1: Don’t pay taxes
The first step is to open a Stocks and Shares ISA. This account allows me to invest in stocks without the headaches, and cost, of dealing with the taxes on them. Those taxes can be as high as 39% in this country. With an ISA account though, the tax is always 0%.
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.
2: Avoid overthinking
I’d next tell myself to buy a FTSE 100 stock. Anything will do. The important part is I do it. I will then see how it works and I will start to see a dividend income come in. Most of all, it’ll get me over the mental hurdle of thinking the stock market is some voodoo I will never understand.
3: Ignore almost everything
Once I have a position in a company, I’d tell myself to ignore the rises and falls. The drops can cause people to panic, sell, and lose a lot of money. But your average FTSE 100 stock has more ups and downs than a see-saw. This volatility is inevitable, like death and taxes (except when using an ISA!)
4: Let my wealth snowball
Once I see income start to trickle in, I’d be tempted to hit the town and enjoy my newfound wealth. But the real power of stocks is in reinvesting those returns. This creates a compounding effect that multiplies my wealth, a little like a snowball that rolls down a hill and grows bigger and bigger.
5: Look to make money faster
As I get used to this type of investing, I may wish to accelerate the process. Choosing the best stocks is one strategy here. There’s a massive difference in returns between the cream of the crop and a company that goes bankrupt.
6: Withdraw without selling shares
At some point, I would recommend I start withdrawing. If handled carefully, this can be done without eating into the original sum at all. One way to do this is to own big-yielding FTSE 100 stocks and simply withdraw the dividends for a passive income.
7: Drive off into the sunset
When the whole process is over, I’d hope that these years of saving and investing would provide an ample second income. This can be used for anything I like. Perhaps I’d want to travel or to retire early. Whatever I choose, I will have earned my ride off into the sunset.
