£10,000 stashed away? Here’s how I’d use it to target a £4,135-a-month passive income

This Fool highlights a growth stock that he believes can help a portfolio grow to the point where it generates a sizeable passive income stream.

| 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.

From real estate to peer-to-peer lending, there are many ways to turn idle cash into a steady flow of passive income nowadays. My own preference is to invest in shares to boost my future income.

I do this within a Stocks and Shares ISA, which allows me to invest up to £20,000 a year and earn tax-free returns. Needless to say, this is great for building wealth.

If I had £10k at hand today, here’s how I’d invest it in an ISA with an eye on future passive income.

Should you invest £1,000 in Aviva 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 Aviva made the list?

See the 6 stocks

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.

Aiming for growth

Sticking all my money into a single stock could be risky, as share price growth and dividends are never guaranteed. Therefore, I’d consider spreading my 10 grand between, say, four stocks to spread risk.

Further, I’d invest in growth-oriented businesses to increase my portfolio size, which could then give me a larger future sum to generate more passive income.

A powerful platform

One well-known growth stock I’ve got my eye on is Uber Technologies (NYSE: UBER).

Like millions of others, I’m a regular user of the ride-sharing and food delivery platform. And I love the app when travelling because the fairs are pre-paid. This can help prevent unscrupulous taxi drivers from ripping me off.

Yet the stock has never appealed to me because of the regulatory risk and lack of company profits (to put it mildly).

I’ve been reassessing my bearishness lately though, and it seems other investors have too. The share price has risen around 83% in the last two years.

Created with Highcharts 11.4.3Uber Technologies PriceZoom1M3M6MYTD1Y5Y10YALL3 Aug 20193 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

In Q1, the company’s revenue rose 15% year on year to $10.1bn. Trips grew 21% to 2.6bn, the equivalent of 28m per day on average. This ongoing growth is one reason why reason I’ve turned bullish on Uber.

But another is its rapidly improving profitability. For the full year, analysts expect $5.4bn in free cash flow, potentially rising to $9.5bn by 2026. The top line is also expected to grow by double digits for years.

That said, regulatory risk still exists. The state of Minnesota just set minimum pay rates for Uber drivers. More locations could follow, increasing operating costs.

On the flip side, it’s possible that the firm has achieved such scale and mindshare among consumers that it possesses the pricing power to offset increased costs.

Meanwhile, it’s also partnered with firms working on autonomous vehicle technology such as Aurora Innovation and China’s BYD. Passengers aside, even delivering food without a driver would improve profits significantly.

Finally, as I write, the stock looks cheap at $58. That puts it on a forward price-to-earnings (P/S) ratio of around 17.5 for 2025’s forecast earnings per share.

Passive income

By investing my £10k in stocks like Uber, I think it’s realistic to achieve a 9% return long term. In fact, that’s actually under the long-term 10% average return of the S&P 500 index (which Uber is in).

If I could invest a further £700 a month on top of my £10,000, my portfolio would grow to £827,067 after 25 years. That’s due to the extraordinary power of compounding (interest earning interest).

At this point, I could rejig my portfolio entirely towards dividend stocks. If these collectively yielded 6%, that would result in the equivalent of £4,135 in tax-free passive income every month.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Uber Technologies. 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

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »