How big a second income could I earn investing £90 a week in shares?

Our writer explains the mechanics of growing a second income by investing money in a range of carefully chosen blue-chip shares.

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Taking on another job is one way to earn a second income. But it is not the only one.

I could try to earn more money by investing in carefully selected blue-chip shares. Unlike taking on a second job, that would not mean me working hours more each week.

Below I explain how I would go about doing this in practice – and what size of second income I might hope to earn.

Financial success is built on financial realism

Wanting to earn a second income often comes about from needing or desiring more money. That can mean there might not be much spare cash lying around to put in the stock market.

So my starting point would be an honest assessment of how much I realistically felt I could invest in shares. Everyone has their own answer. In this example, I use £90 per week.

The reason I mention regularity is because I think habit formation is important when trying to build a second income.

I could simply put aside spare cash as and when I had some – but would I do that in reality? I think having a regular set savings target could help my discipline.

Getting ready to invest

Cash sitting on the sideboard is not ready to be put into the stock market, however.

So I would set up a share-dealing account or Stocks and Shares ISA.

I would also read up on the stock market and try to learn how be to be a good investor.

Finding shares to buy

My next move would be to make a shopping list of shares to buy.

Note that I am talking here about multiple shares, not just one. There is a simple reason I would not put all my money into my single best investment idea – it could turn out worse than I hope!

To illustrate the sort of share I would be looking for, consider B&M (LSE: BME).

The discount retailer has a large potential customer market it can target. The demand for things like basic household items and groceries is likely to endure. On one hand that is a crowded market. That poses a risk to profit margins for B&M. So too do elevated international shipping rates, as it imports a lot of goods from overseas.

But it has what I see as competitive advantages: a very skilled sourcing operation, strong brand, and large existing customer base. The company announced full-year results this week that showed ongoing revenue growth in each of its business divisions.

If I had spare cash to invest, B&M is the sort of share I would be happy to tuck into my shopping basket.

Calculating income

With a dividend yield of 3%, though, B&M would earn me only £3 per year for each £100 I spent on its shares, if the dividend is maintained at its current level. I’d like more!

My £90 a week adds up to £4,680 in a year. At a higher average yield – say 6% — that should earn me a second income of around £281 annually.

If I kept going, though, after five years I would have saved over £23,400 to invest. At a 6% yield, that could earn me a second income of over £1,400 per year.

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. 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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