Here’s why I’d buy UK stocks to earn passive income in 2024 and beyond

We’re near the New Year, and people all over the country will be thinking about how to build up some passive income in the years ahead.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Black woman using a debit card at an ATM to withdraw money

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Why do I choose a Stocks and Shares ISA to try to build a passive income?

Firstly, it’s low effort. Well, that’s what the ‘passive’ part means, but a lot of ideas do need a fair bit of work up front.

A quick search finds some creative thoughts. Write a book, sell your photographs, create online teaching courses… but they take a lot of skill to achieve.

A simple start

Choosing the shares to buy can be a simple or as complex we choose. The easiest way is to just put money regularly into a FTSE 100 index tracker.

That’s a fund that spreads our cash across the whole FTSE 100 (or uses clever ways to replicate its performance), so we should get close to an average return.

Some passive income ideas are risky, or can just be a plain headache. Rental property is a common suggestion, and I’ve done that. It can work out well, but there’s always something needing fixing, or something going wrong.

What about risk?

I mention risk, and that might make some people twitch. The stock market is horribly risky, right? We have just had a crash in 2020, when Covid struck.

But here’s something surprising. The FTSE 100 has already recovered all the losses it suffered since the collapse that kicked off on that fateful day in 2020.

And we’re even looking at a 10% gain in the past five years, plus dividends. Those dividends probably add another 15%, or more.

That’s not get-rich-quick money. But it doesn’t look like a high-risk disaster.

Reducing pain

To be fair, some stocks are still down in the dumps since the crash. So investors clearly faced more risk with those.

But that helps highlight the two most important things we can use to minimiSe the risk we face from buying UK stocks and shares.

One is diversification. If we hold a spread of stocks in different sectors, we can offset the risks of any one industry going down.

The other, possibly even more important, is time.

Long-term record

UK shares have recovered well since the pandemic. But other downturns in the past have lasted longer.

But researchers at Barclays have looked at returns from UK shares, and compared them to cash savings and gilts (government bonds, usually seen as very safe) for more than a century.

There have been some short spells when shares have been well beaten by cash savings.

But when they looked over longer and longer periods, they found something very interesting. The longer the period, the better shares performed.

Invest in shares for at least 10 years, preferably 20 years or longer, and our chance of losing out gets less and less.

Shares vs YouTube

Barclays hasn’t compared shares to making viral pop songs on YouTube, or any of the other things that need actual talent (and often a bit of luck).

Those who have skills that I don’t might well do a lot better aiming for other forms of income.

But for me, there’s really only one option. I buy dividend-paying shares in my Stocks and Shares ISA, and I’ll keep going for as long as I can.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »