Working for the rest of my life doesn’t exactly sound thrilling, so I fully intend to eventually live on the passive income generated by my investments. And given enough time, even a small monthly contribution can be all that it takes to achieve financial freedom.
There are always stories of a few lucky individuals who get rich quickly in the stock market. But such occurrences are exceptionally rare. And what’s not reported are the countless investors chasing such gargantuan returns only to be left with nothing.
So, instead of relying on lottery-like odds, I’m sticking to a more reliable strategy. I’m steadily building up wealth over time. It’s been just over a decade since I started my personal journey, and I’m fortunate enough to already have a portfolio in six-figure territory. And with another 35 years to go before retirement, I hope to push my nest egg over the multi-million-pound threshold before I’m done.
Long-term investing
One of the easiest ways to kick-start a portfolio is with a low-cost exchange-traded fund (ETF). Most Britons like to track the FTSE 100 for its reputation of stability. But if growth is the name of the game, tracking the S&P 500 may be the wiser move.
After all, with exposure to tech stocks, the S&P 500 has been able to generate returns closer to 10% versus the FTSE 100’s 8% over the long run. Of course, this does come with higher levels of volatility.
Assuming no hiccups along the way, investing £99 a month for 45 years at this rate translates into a portfolio worth £1,037,770. Following the 4% withdrawal rule, that’s a passive income of £41,510 – not a bad pension plan. But I can potentially do better.
Maximising returns
Instead of relying on passive index funds, I’ve been taking a more active approach. This investing strategy comes with far more responsibility and volatility. But by picking individual stocks it’s enabled my portfolio to achieve market-beating returns. Shopify (NYSE:SHOP) is a good example of this. The shares are up almost 1,200% since my initial investment in 2017, despite the massive tumble it suffered in 2022.
The e-commerce platform has evolved into a mission-critical tool for small and large online retailers, resulting in tremendous growth over the years. Yet its long-term prospects continue to be exciting. That’s why I’ve been steadily topping up my position since its recent nosedive began. But I’m expecting plenty of volatility ahead.
Finding stocks with Shopify-like returns is no easy task. And I’ve made plenty of blunders along the way. However, identifying quality early on and holding for the long run can make an enormous difference to a portfolio’s performance.
Even if I’d only managed to eke out an extra 2% over the S&P 500’s average over 45 years, that’s enough to grow a £2,124,000 nest egg. And in terms of passive income, it’s the equivalent of £84,960 a year.
