£20,000 in savings? I’d try to turn that into £29,685 of passive income each year

It’s amazing how much passive income can be generated by taking a long-term approach to investing. This is what I’d do with £20,000 in savings.

| More on:
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.

Passive income is earned by doing very little. But as appealing as it might sound to earn lots of it, there’s a bit of patience needed. Let me explain.

For the purposes of this exercise, I’m going to assume I have savings of £20,000 available to invest. This is the amount that can be invested each year in a Stocks and Shares ISA.


As a risk-averse investor, I’d be uncomfortable concentrating all of my funds in a single stock. I know that if I bought the ‘correct’ one, I could make a lot of money. But with an estimated 60,000 listed companies in the world, there’s a good chance I’d choose unwisely.

One way of potentially overcoming the problem of picking winners is to buy shares in an investment trust. Although I’d hold a single investment, my risk’s spread across the many stocks the trust owns. My exposure isn’t then limited to one particular industry, index, or country.

What to buy?

With this in mind, I’d use my hypothetical £20,000 to buy shares in Allianz Technology Trust (LSE:ATT). Although not guaranteed, I believe technology stocks are likely to out-perform the wider market.

I like the fact that the trust isn’t just focused on artificial intelligence (AI). Although I believe AI’s going to revolutionise our lives, I think it’s a little too early to identify which particular aspect of the technology is going to be the most profitable.

As its name suggests, ATT has a wider remit and invests in all parts of the tech sector. Having said that, its biggest holding (9.9% of total assets at 29 February 2024) is Nvidia, whose semiconductors are used in many AI applications.

Its next four biggest stakes are in Microsoft (8.1%), Meta Platforms (6%), Apple (6%) and Broadcom (4.2%).

Another positive is that it invests only in quoted companies. Its more famous peer, Scottish Mortgage Investment Trust, owns some of the “world’s most exceptional growth companies”. But many of them aren’t listed, which means valuing them accurately can be difficult.

Historical performance

A summary of ATT’s performance, for the five years ended 29 February, is illustrated below.

Source: Allianz Technology Trust, February 2024 Factsheet

Although it hasn’t performed as well as the Dow Jones World Technology Index, its cumulative five-year return of 139.4%’s impressive.

Also, the fund currently trades at a discount of approximately 10% to its net asset value, which implies the stock’s undervalued.

But tech stocks can be volatile. And when the dotcom bubble burst, we saw how quickly things can go spectacularly wrong.

However, for the purposes of this hypothetical exercise, I’m going to assume that the trust’s share price increases by 17.4% a year. This is equal to its compound annual growth rate during the five years ended 22 March.

Of course, there’s no guarantee history will be repeated. But if I could achieve this growth rate, after 20 years, my initial stake would be worth £494,757.

I could then sell up and buy some dividend stocks. Assuming an average yield of 6% — again, not guaranteed — I’d be able to generate an impressive income stream of £29,685 a year, with minimum effort.

That’s why I believe patience is the superpower of the wise.

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.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Meta Platforms, Microsoft, and Nvidia. 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

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

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

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »