How much should I put in stocks to give up work and live off passive income?

Here’s how much I’d invest and which stocks I’d target for a portfolio focused on passive income for an earlier retirement.

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Passive income has the potential to help people achieve an earlier retirement.

Stocks and shares can be decent vehicles for generating income from their dividends.

It’s possible for many people to retire early after investing as little as £100 a week.

Compounding gains from dividends

The historical long-term compounded annual gain from shares in aggregate is often quoted as being in the ballpark of about 7% with dividends reinvested along the way.

So investing £100 a week and achieving an annualised gain like that could lead to an investment pot worth around £227k after 20 years and £531k after 30.

Nothing’s guaranteed, of course, but having that much money makes the possibility of earlier retirement worth considering for many.

But what stocks are best to buy? I’d go for a low-cost FTSE All-Share tracker fund to begin my investing journey. The index is backed by hundreds of businesses, many of which are well-established and paying chunky shareholder dividends.

Overall, the dividend yield of the FTSE All-Share index is running at about 3.9%. Capturing that with a tracker fund could lead to decent passive income.

Shooting for higher passive income

As my investment funds hopefully grow I’d aim for higher yields as well from buying the shares of individual companies. For example, some of my top stock picks for dividends include firms such as National Grid, Coca-Cola HBC, Legal & General and IG Group.

But one business that stands out for the consistency in its dividend record is Hargreaves Lansdown (LSE: HL).

The investing platform has raised its shareholder dividend every year since at least 2018, as this table shows:

Year to June2018201920202021202220232024(e)2025(e)
Dividend per share32.2p33.7p37.5p38.5p39.7p41.5p42p45.9p
Dividend growth11%4.66%11.3%2.67%3.12%4.53%4.63%10.7%

If performance like that continues, shareholders can look forward to a growing stream of passive income.

However, Hargreaves Lansdown used to have a growth valuation, but lately the stock’s fallen out of favour with investors and the earnings multiple’s shrunk. The chart tells the story:

Now, with the share price near 753p (25 April), the forward-looking dividend yield for 2025 is just over 6%. That’s a chunky potential income for shareholders, but the lower valuation likely means investors are worried about something.

A competitive market

The main risk seems to be the growing number of competitors such as AJ Bell, Interactive Investor and many others. During its fast-growth phase, Hargreaves Lansdown enjoyed strong product and service pricing. Maybe cash flow and profit margins will decline in the coming years as the competition bites. We could even see cuts to the dividend.

However, the company’s been diversifying its product range and the directors were optimistic in the recent half-year results report. The company has a clear strategic ambition, they said, and early delivery provides “strong potential for future growth”.

For the time being, I’d be inclined to give Hargreaves Lansdown the benefit of the doubt. Therefore, I’d consider adding some of the shares to a diversified portfolio focused on passive income for earlier retirement.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc and Hargreaves Lansdown 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.

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