£10K to invest? I’d follow these steps to create a second income worth £359 per week

Building a second income stream through investing is possible, according to our writer. Here she explains how she would go about it.

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Having one form of income is a blessing, in my eyes. However, building a second income to boost wealth and enjoy later in life would be brilliant.

I reckon it’s possible to do this with a well thought-out plan, and some clear guidelines. Let me explain how I’d go about it.

Rules of the game

Let’s say I had a lump sum of £10K to start with today. The first thing I’d do is put this all into a Stocks and Shares ISA. I’d choose this method as I’m relying on dividends to grow my pot of money, as well as the magic of compounding. The beauty of this type of ISA is that I don’t need to pay any tax on dividends.

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.

Speaking of dividends, I need to pick the best stocks with the prospects of regular returns to build my wealth and eventual pot. I’d remember two things. Firstly, the past is never any guarantee of the future, so I’d look for the best firms with bright future prospects. Next, diversification can help mitigate risk.

Let me crunch some numbers. Along with the £10K lump sum, I’d set aside £250 per month from my wages. Investing for 25 years, and aiming for a rate of return of 8%, I’d be left with £311,158.

Now I’m going to draw down 6% annually, and split that into weekly amounts, which equates to £359 per week.

A few caveats to remember when following any such plan are that dividends are never guaranteed. Plus, 8% is a lofty ambition. My stocks may return less, therefore, meaning I’m left with less money to draw down on. Alternatively, I could yield a higher level of return, meaning I’ve got more money to enjoy.

Stock picking

If I was following this plan, I’d love to buy shares in Assura (LSE: AGR). The business is set up as a real estate investment trust (REIT) meaning it makes money from renting out property. Also, it must return 90% of profits to shareholders. This makes it an attractive prospect to bag dividends in any plan towards building an additional income stream.

In Assura’s case, it provides healthcare premises to the NHS, in the form of GP’s surgeries and other provisions, as well as private medical businesses.

The healthcare property market offers defensive abilities, in my view. This is because healthcare is a basic necessity, no matter the economic outlook. Plus, with the rising and ageing population in the UK, there could be great growth opportunities for Assura to grow earnings and returns.

At present, the shares offer a dividend yield of just under 8%. Furthermore, the business has a good track record of payments across the past decade.

From a risk perspective, I noticed that Assura’s balance sheet revealed debt levels could dent earnings and returns if not addressed or managed properly. There could come a time whereby paying down debt could take precedence over investor returns. This is something I’d keep an eye on.

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 no position in any of the shares mentioned. 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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