Does a second income mean a second job? An extra income stream sounds nice, but renting out a spare room or building a ‘side hustle’ over the internet sounds like a lot of work to me.
I suspect this is why the number of UK adults who have invested in stocks is now up to 27m. The stock market is a golden opportunity to earn a reliable income stream without doing anything. Once it’s set up, the whole thing runs on autopilot.
That’s not to say creating such a portfolio of stock is easy, and anyone wanting to build a second income like this will encounter a problem straight away. What to invest in?
Accumulation
The FTSE 100 contains the biggest businesses in Britain. I can choose from a hundred proven business models drawing income from around the globe – some of which have been plying their trade since the 19th century.
But for newbie investors, the size and age of these companies can be a drawback rather than a benefit. Huge oil majors and banking giants shell out billions in dividends year after year, but the share prices don’t grow too much.
The thing is, we want growth, especially early on. This first period of investing is sometimes called the ‘accumulation phase’. During this phase, it can pay handsomely to invest in smaller businesses with room to grow.
If I look beyond the FTSE 100, the London Stock Exchange is home to around 2,000 different companies from 60 countries around the world. Around 100 new ones are added each year too.
Life changing
I won’t expect every stock to be a success. Peter Lynch took his fund from $14m to $20bn aiming for a 60% success rate. It only takes one well-chosen stock to deliver life-changing returns.
Ashtead (LSE: AHT) is a recent example. On the surface, this is a very dull company. It rents out industrial machinery like diggers, scaffolds, or forklifts.
But the business provides a valuable service. Other companies reduce costs by renting to cover shortfalls, emergencies, or simply not having to spend on the machinery themselves. The service Ashtead offers is so valued the stock went up 10,551% in the last 15 years.
The success transformed Ashtead from a £221m company in 2009 to a £23bn FTSE 100 giant in 2024. Including dividends, investors would have turned a £1k stake into £202k.
Now, Ashtead is a larger, more mature enterprise with less room for growth. It may still be a good investment but I wouldn’t buy Ashtead expecting it to repeat that incredible growth.
Jumping off point
Likewise, there are no guarantees with this or any other investing strategy. But for those seeking a life-changing second income, high-quality businesses with a growth story are a terrific jumping-off point.
