£17,000 in savings? Here’s how I’d target a weighty passive income

Funnelling any spare savings towards building a passive income is certainly a smart idea, but how to find the right stocks to invest in?

| More on:

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.

Recent research from money.co.uk shows, in 2024, the average UK savings account holds £17,365. Invested shrewdly, such a sum can earn a weighty passive income all by itself. 

The catch is that big passive income rarely comes from bog-standard savings accounts. For much of the last decade, this type of account might yield a percent or two a year. I’ve seen Cash ISAs offering as low as 0.25%. That’s just not going to cut it. 

Lucrative nature

My preferred method of growing savings is with the stock market. The London Stock Exchange offers access to thousands of businesses that anyone can buy into even with just a few pounds at first. These businesses all have the goal of growing the value of their shares too. 

Of course, the lucrative nature of stocks and shares is no secret. Billions of pounds are paid out in dividends each year and the record profits of giants like Shell or Tesco are rarely far from news headlines. 

The question is not so much ‘Do people make money on the stock market?’. Rather, it’s more ‘How do people make money on the stock market?’. The tricky part is choosing the right horses to back.

With those thousands of businesses listed in London, and many more across the world besides, it’s worth narrowing down the choices with a suitable requirement. 

One requirement is that of the ’10-bagger’. This phrase was coined by billionaire investor Peter Lynch and refers to a company that’s gone up 10 times in share price.

10 times

Nvidia is an example that most people will know. In May 2020, the shares cost less than $88 apiece. Today, the shares change hands for $887. That’s over a tenfold increase in a few years. Hence, Nvidia is one of these 10-baggers. 

And while American tech has had a quite terrific few years, we don’t need to focus on computers or even on the US to find 10-baggers. These companies exist closer to home. 

The familiar name of Rolls-Royce (LSE: RR) achieved the feat not so long ago. The shares were below 42p in October 2020. Now they go for 428p. That’s another 10 times return for another 10-bagger. 

I hold Rolls-Royce shares still and I like the future for the company. While I don’t see another 10 times return happening quickly – the pandemic year of 2020 made many travel-adjacent stocks unusually cheap – I think this might be one of the better FTSE 100 companies to own. 

Rolls holds an entrenched position in an industry with high barriers to entry. The average skilled engineer isn’t likely to step out and make a new start-up building engines very easily. That gives Rolls a lot of safety from competition. 

Airbus released its A350 widebody plane in 2015. Is Rolls-Royce one of the enginemakers that can produce engines for these new planes?

Well, yes, because it’s the only company whose engines work. The A350 aeroplane operates exclusively with the Rolls-Royce Trent XWB engines.

One drawback is the price. Rolls-Royce trades at around 29 times forward earnings, which is one of the highest on the FTSE 100. 

Am I buying?

Even still, I expect the future to be bright for this British company. The only reason I don’t buy more is that my position is big enough already!

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.

John Fieldsend has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia and Rolls-Royce 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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »