How I’d invest £180 a month in UK shares to aim for a £10k passive income for life

UK shares are an excellent source of passive income. In fact, the average monthly savings are more than enough to make a £10k income in the long run.

| 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.

Smiling white woman holding iPhone with Airpods in ear

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.

Wouldn’t it be lovely to make some passive income in 2024? Considering the ongoing cost- of-living crisis, I’d certainly say so. And even an initial small stream of money would be welcome for most households.

The good news is most can achieve just that! The latest data from the Office for National Statistics reveals that the median monthly household savings is £180. And that’s more than enough to kick-start an income-producing investment portfolio.

Investing in UK shares obviously comes with risk. Not every stock delivers impressive returns, and a badly built portfolio can actually destroy wealth rather than create it. But there are powerful tactics even novice investors can use to try and avoid such mistakes.

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

See the 6 stocks

So with that in mind, let’s explore how to turn a £180 monthly investment into a £10,000 passive income.

Crunching the numbers

Let’s start by setting some targets. If I want to earn £10,000 a year passively, how much does my portfolio need to be worth?

Let’s follow the 4% rule used by most financial advisors. In simple terms, this rule states that investors shouldn’t withdraw more than 4% of the value of their portfolios each year. That way, wealth can continue to grow even when taking out profits.

So at 4%, a £10,000 passive income would require an investment portfolio worth £250,000. Needless to say, that’s quite a bit of cash. And by simply saving £180 a month, it would take 115 years to accumulate – ouch!

Fortunately, this journey can be massively accelerated through the magic of compounding. On average, the stock market delivers returns of around 8% a year. And assuming this continues into the future, investing £180 at this rate would reach the £250,000 threshold in just under 30 years.

Seeking bigger rewards

Three decades is obviously a significant improvement compared to over a century. However, as previously stated, this is based on the assumption that the stock market continues to deliver its historical average performance. And that’s far from guaranteed.

Therefore, while it does entail greater risks, picking individual stocks may prove to be the wiser move. By owning individual businesses, investors can focus their portfolios on only the best companies in the world. And over the long run, that’s a proven strategy for generating market-beating returns.

Take Halma (LSE:HLMA) as an example. The conglomerate safety, monitoring, and life sciences enterprise has been consistently delivering impressive growth for decades through a bolt-on acquisition strategy. And as safety standards have and continue to rise thanks to regulatory intervention, management hasn’t exactly been short on demand over the years.

Created with Highcharts 11.4.3Halma Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

So it should come as no surprise that it’s one of the best-performing businesses on the London Stock Exchange over the last 30 years, delivering an average 13% annualised return. At this rate, the journey to £250,000 would only take roughly two decades instead of three.

Of course, past performance doesn’t guarantee future returns. And in the case of Halma, the firm has plenty of risks to tackle, from a shifting regulatory environment to potential underperformance of expensive acquisitions. But by building a diversified portfolio of quality companies, these risks can be mitigated and help keep a portfolio on track.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma 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

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »