Would you take £10,000 in cash, or a £100 monthly passive income?

£10,000’s a decent amount of cash. But investors should be careful not to underestimate the long-term value of a regular passive income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Suppose you had a choice between receiving £10,000 in cash right here right now or a £100 monthly passive income for the foreseeable future. What’s the right thing to choose?

The boring answer is that it depends. But to see more precisely why this is the case – and what it depends on – let’s have a look at the returns that could be generated by investing each.

Compound interest

Let’s suppose I’m able to invest at a 6% annual return for the foreseeable future. With £10,000, it would earn £600 in passive income in the first year – or £50 a month.

Should you invest £1,000 in Primary Health Properties right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Primary Health Properties made the list?

See the 6 stocks

If I kept reinvesting my returns, the power of compound interest means I’d earn £1,056 in year 10, £1,923 in year 20, and £3,498 in year 30. And I’d have an investment worth £60,225. 

By contrast, if I took the monthly income and invested it at the same rate, I’d only receive £39 in the first year. But, over time, adding £100 each month while reinvesting the returns works out well.

I’d still be worse off after 10 years than if I’d taken £10,000, earning £924 a year. But I’d receive £2,665 after 20 years and £5,832 in year 30, with an investment eventually worth £101,053. 

The tipping point is in year 12. That’s when the monthly £100 portfolio (which returns £1,1941) moves ahead of the £10,000 portfolio (which returns £1,191). 

A higher rate of return moves the tipping point further into the future. But the general point is clear. Over time, a £100 monthly investment can be extremely valuable. 

How to get a 6% return

When a stock has a 6% dividend yield, it’s often a sign investors are worried about the company’s prospects. But in the case of Primary Health Properties (LSE:PHP), I think they’re mistaken.

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.

The risk I think investors are seeing is the firm’s debt. It has a loan-to-value ratio of 48%, which is much higher than other real estate investment trusts (REITs) and is a potential threat to the long-term stability of the business.

This is something investors ought to pay attention to, since excess debt can cause costs to rise and dividends to fall. But I think it’s less of a problem than it might seem at first sight. 

As a rule of thumb, the more predictable a firm’s income is, the more it can afford to take on in debt. And the rental income Primary Health Properties generates is more secure than other REITs.

Most of the company’s rent comes from the NHS, making the chances of a rent default relatively low. This gives it very good visibility and allows the business to plan for its debt obligations. 

Furthermore, an aging population means demand for GP appointments is unlikely to fall any time soon. As a result, I think this could be a source of 6% dividends for some time to come.

Long-term investing

If someone offered me £10,000 today, I’d be delighted to take it. But as someone with a long-term investment outlook, a £100 monthly passive income would be even better. 

The most important thing though, is to keep looking for the best stocks to buy. Whether it’s £10,000 today or £100 a month for the long run, finding the right opportunities is key.

Should you buy Primary Health Properties now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Stephen Wright has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties 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

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »