I think the opportunities for building a passive income pot on the stock market might have never been better than they are today.
If I were younger and starting again, I’d do things a bit, though not a lot, differently. Mostly, I’d stick with a diversified portfolio, hold for decades, and reinvest my dividends.
But I might take more risk with a portion of my cash.
Chips on the side
Nvidia (NASDAQ: NVDA), today, reminds me of high-tech growth stock opportunities I missed in the past. Nividia is up a whopping 2,600% in the past five years.
If I’d invested just £200 a month for a year prior to that, I could now be sitting on something around £62,400. And if I cashed that in and transfered it to a range of FTSE shares?
The UK stock market has made total returns of around 7% in the long term, so just that one well-timed investment of £2,400 could be enough to now get me about £4,300 in passive income each year.
That, of course, tells me nothing about whether I should buy Nvidia shares today, of course.
The one that got away
It reminds me of another great Nasdaq stock I missed out on, Amazon.com (NASDAQ: AMZN).
I remember looking at Amazon in December 1999 and thinking it was heading for a crash, and I shouldn’t touch it with a bargepole.
I watched the dot com bubble deflate, smug in the knowledge that I hadn’t lost a single penny in it.
But what’s happened to Amazon since then? What if I’d I bought even at the peak in 1999, at the worst possible time? Well, if I’d held on, by today my money could have multiplied 35-fold.
And if I’d got in near the bottom of the crash in 2000? I’d be up around 600-fold. That’s how good I am at avoiding sure-fire losses in bubbles about to burst.
Spill the beans
So, what’s this modestly different strategy I’d go for if I had my time again?
It’s to put 80% of my investment cash into my favourite, boring, stocks. And let’s assume I could equal the UK average of about 7% per year.
And then use the other 20% to chase Nasdaq growth stocks. If I achieved the Nasdaq’s total returns of the past 35 years, I might get around 14% per year on average.
With £1,000 a month for 20 years, the 80% of my cash in UK stocks could grow to £408,000. And the 20% in the Nasdaq could reach £235,000.
And the lot then moved to the London stock exchange could net me my £45,000 per year returns at 7%.
Any danger signs?
Isn’t this a high-risk strategy? Well, yes, I can’t deny that. Those past high returns might well not happen again. But I’d still only be going for the big risks with 20% of my money.
And here’s an interesting observation…
Suppose I’d split £10,000 across 10 high-risk growth stocks five years ago. One was Nvidia, and the other nine all went bust and wiped me out. I’d still £26,000 today.
