How quickly could we build a £10k passive income from a Stocks and Shares ISA?

Doesn’t it take a lifetime to build a decent passive income by buying shares on the UK stock market? Potential investors might be surprised.

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.

Passive income text with pin graph chart on business table

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

If I’m looking for a passive income of £10k a year, there’s one thing I need to be clear about up front. I won’t be trying any get-rich-quick schemes.

But I do think it’s possible to reach a target like this quicker than people might think, using a Stocks and Shares ISA. Maybe even a lot quicker.

Still, let’s look at the idea of finding short cuts via the occasional multi-bagger. It’s not something I’d ever plan for, but it’s nice if it happens.

Boom and bust

We’ve had a few stocks in the past few years that look like they made some people a lot of money. In each case it was a small-cap, and the share price took off like a rocket.

One stock soared nearly 1,000-fold, which could have made that £10k income target in just a few weeks. But only for those lucky enough to sell at the top, as it quickly plummeted.

There was an almost certain pump-and-dump scam going on. But I won’t name the stock, as the company itself had nothing to do with it.

Short-term gains

Someone asked me an interesting question a few weeks ago. They know I invest for the long term, and mainly for dividends. But they wanted to know how I’d go about it if I wanted to make some short-term profits from the stock market.

So which stocks would I buy, and how would I choose them? My answer was simple. I’ve no idea. And that’s why I don’t try it.

I suggested throwing darts at the Financial Times and buying whatever companies they hit.

The long term

Anyway, back to the long term, which might not be so long. The average annual Stocks and Shares ISA return over the past 10 years comes in at 9.6%. Isn’t that remarkable?

That’s a decade that saw a global pandemic and a stock market crash. Yet we still had big profits from shares.

This seems exceptional though. And my thought is that we’re more likely to see something around 7% a year as a long-term average.

How much cash?

To get £10k a year at that 7% rate, we’d need to build up a pot a bit over £140k. So let’s say £145k to give us a bit of breathing space.

Someone who could use up their whole ISA allowance (currently £20k a year) could get there in only six years.

Now, I don’t have that much to invest. But £10k invested each year could reach the goal in just over 10 years.

And then, an investor with just £5k a year could get there in about 16 years. That’s £417 a month.

Here’s my take

These are just some ‘what if?’ numbers, to give us an idea of what might be possible.

There’s no certainty with shares, and those wanting guaranteed returns might go for a Cash ISA. But that could take a lot longer.

For me, I just invest as much as I can and hope I’ll be pleasantly surprised at the end of it.

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 no position in any of the shares mentioned. 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

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »

Investing Articles

There are now 5,000 ISA millionaires! See the surprising UK dividend shares they’re buying

The number of ISA millionaires is growing all the time and guess what? They're really into blue-chip dividend shares listed…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »