£15K in savings? I’d look to turn that into a second income stream worth £400 per week!

Sumayya Mansoor explains the careful steps she’d follow to help generate a second income stream for her to enjoy later in life.

| 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.

If I had known much earlier in life that investing regularly today could help me build a second income stream for tomorrow, I’d have started much sooner.

It’s still possible to start today, in my view. Let me break down how I’d approach it.

Rules of the game

Let’s say I have a £15K lump sum to invest today. I’m also going to invest £250 per month from my wages too. I save and invest each month anyway, so this is doable.

First, I need to pick an investment vehicle. I reckon a Stocks and Shares ISA is a no-brainer as I wouldn’t need to pay tax on dividends I received. Dividends are key to building my pot up.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The other thing is to ensure I pick the correct stocks, for the best chances of maximising my returns. I’m going to aim for the best dividend-paying stocks. I’m looking for established businesses, with good track records of returns, as well as solid future prospects. I reckon 5-10 stocks should work for me.

Let’s crunch some numbers. Investing a £15K lump sum, and adding £250 per month for 25 years, aiming for a return of 8%, the magic of compounding would leave me with £347,859.

I’d then draw down 6%, leaving me with £20,871. As a weekly figure, that translates into £401.

However, there are risks to note. Firstly, I must remember that dividends are never guaranteed. I might end up with a lower rate of return, therefore decreasing my final pot. Plus, all stocks come with individual risks I must consider too.

One stock I’d buy

If I was undertaking this plan today, Foresight Solar Fund (LSE: FSFL) is the type of stock I’d love to buy to help me maximise returns.

As the name suggests, the business invests in solar assets, with coverage across the UK, Spain, and Australia.

The firm’s assets generate clean electricity, which is then sold to energy companies. At present, the emphasis on clean energy, and moving away from traditional fossil fuels, is huge. This is only set to ramp up, in my view. Foresight could be in a great position to capitalise and deliver excellent shareholder returns.

At present, Foresight shares offer a dividend yield of 8.8%, which is higher than my aim of an 8% rate of return. Plus, the business has hiked dividends for the past nine years in a row. However, I do understand that past performance isn’t necessarily an indicator of future events.

From a bearish view, Foresight has a fair amount of debt on its balance sheet. This could hinder payout levels moving forward. The bigger issue for me is the difficulty surrounding new solar farms. The complexity around regulation involved with land for such farms, as well as high expenditure, make me wonder if growth and consistent returns will be easy to achieve.

To summarise, Foresight ticks the boxes I’d look for in a stock I’d buy to help me build an additional income stream.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Foresight Solar Fund. 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

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d aim to turn that into a £10,548 passive income each year!

Buying high-quality, high-yielding shares can generate a big passive income over time, especially if the dividends are used to buy…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

As AstraZeneca’s share price dips 4%, is it time for me to buy more?

Despite its 12-month increase, AstraZeneca’s share price appears very undervalued to me, and looks set to rise on strong growth…

Read more »

Investing Articles

FTSE 100 or S&P 500: where should I invest?

UK investors are often drawn to the high growth of US stocks. But there are pros and cons to be…

Read more »

Investing Articles

2 of the best US growth and dividend stocks to consider!

These heavyweight US stocks have been delivering tasty investor returns for decades. Here's why they could remain great picks for…

Read more »

Investing Articles

I reckon these 2 penny shares are hidden gems worth a closer look!

Some penny shares are well-known, whereas many others go under the radar, but that doesn’t necessarily mean they aren’t potentially…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before August [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

2 FTSE 100 shares with blockbuster yields investors should consider buying

Our writer has noticed that these FTSE 100 shares offer mammoth dividend yields, and reckons investors should take a closer…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Down 36% and yielding 7.8%, is this FTSE 250 share a bargain?

Christopher Ruane looks at a FTSE 250 share with a sizeable dividend yield and a recent record of dividend growth.…

Read more »