I’ve come across many ideas for building passive income in my time. And I’ve seen some pretty weird ones over the years too. The investment business goes through its fads and fashions, oh yes.
Here are five reasons why buying shares (preferably through a Stocks and Shares ISA) is the only route for me.
#1 – No ostrich farm
Some years ago, ostrich farms started popping up. And there were various schemes for individual punters to plonk down a few quid, with the promise of fat profits.
I don’t know how many were scams. But I don’t see all that many ostrich farm millionaires around today.
By contrast, the UK stock market isn’t some bright new idea. It’s no ‘get rich quick’, or ‘crash and burn’ thing.
No, it’s something that’s passed the test of time, and beaten other forms of investment for the past century and more.
#2 – See the gains
We also have lengthy performance figures to give us some idea of what we might achieve. If I can’t count something, I tend not to want to put cash in it.
Stocks and Shares ISA returns have varied, but they averaged 9.6% a year in the past decade. That’s pretty good, especially as it spans the pandemic stock market crash.
I think it’s maybe a bit optimistic. But over the long term, UK shares have averaged around 7% a year.
That’s not guaranteed. But it gives me some numbers to base my hopes on.
#3 – The risk fades
Isn’t the stock market horribly risky? I grew up thinking that, for sure. But here’s the thing. Yes, there’s risk, but the longer we leave our money in, the lower the overall risk.
Experts at Barclays have watched long-term UK stock market returns, checking rolling periods, and comparing to cash and gilt returns.
And in the whole of the 20th century, shares came out tops in every rolling 20-year period (1970-1989 inc, 1971-1990, etc).
#4 – As easy as we want
Now I come to the passive part of passive income. I don’t want to have to keep working for it, or it just isn’t passive, is it?
Some work is needed up front, that’s for sure. We need to set up an ISA, and get our regular savings into gear.
Oh, and then choose which shares to buy, which has to be the hard part, right?
Well, it can be as easy as just buying a FTSE 100 index tracker, and letting a computer spread our money over the UK’s biggest stocks.
#5 – Or as complex
Then again, we can become as involved and active in our stock picks as we wish. Fancy something a bit more focused than a tracker? I buy investment trusts, which pool my money in a specific strategy — like UK dividend stocks, for example.
And then we can learn more, refine our strategy, and become as specialised as we want.
There are no guarantees here (unlike, say, a Cash ISA). But I reckon the stock market could have something for everyone.
