£9,000 in savings? Here’s how I’d aim to turn that into £400 of monthly passive income

There are plenty of ways to earn a passive income, but few are as tried and tested as investing in stocks and shares. Dr James Fox explains.

| 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.

Investing in stocks and shares is one of the most effective ways for me to generate passive income. By purchasing shares in companies, I can benefit from capital appreciation and dividends over time.

This strategy allows my money to work for me, providing a steady income stream without active involvement. With careful research and a diversified portfolio, investing in the stock market can be a rewarding path to financial freedom and long-term wealth accumulation.

What’s more, when I invest through a Stocks and Shares ISA — available through all major brokerages — all my earnings will be tax-free.

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

See the 6 stocks

So how would I turn some savings, say £9,000, into a passive income that could truly change my life? Let’s take a look.

Compounding’s king

When it comes to building my portfolio for passive income, Compounding’s definitely king. Starting with £9,000, I have a solid foundation to harness the power of compound growth. By reinvesting dividends and capital gains, my initial investment can snowball over time, potentially growing exponentially.

To maximise compounding, I should:

  1. Diversify my investments
  2. Reinvest all returns automatically — growth-oriented companies typically reinvest earnings anyway
  3. Make regular additional contributions to increase the pace of growth
  4. Maintain a long-term perspective

Time’s my greatest ally in this process. The longer my money compounds, the more dramatic the results can be. For example, assuming an average annual return of 7%, my £9,000 could grow to over £35,000 in 20 years without any additional contributions.

However, if I make sensible investment decisions, my portfolio can growth much faster than that. For context, my daughter’s portfolio grew 35% in her first year. It’s going well in year two as well. Good investors can easily average double-digit returns.

So if I were to average 10% annualised growth, after 20 years my £9,000 would be worth £65,000. That’s without any additional contributions. And with £65,000, well, I could generate around £400 a month by invest in high-dividend yielding stocks.

But where to invest today?

At the time of writing, the Nasdaq is near an all-time high, US mega-cap stocks are trading at high multiples, the market’s digesting Labour’s first Budget, and the US election’s next week. This doesn’t make stock picking easy.

One interesting option to consider could be Greencoat UK Wind (LSE:UWK). This renewables fund currently trades at a 15.9% discount to its net asset value (NAV) — the value of its assets according to auditors — and offers investors a 7.5% dividend yield.

Greencoat UK Wind’s unique dividend growth policy, linked to RPI, is an attractive proposition. However, with RPI falling to 2.7%, the 2025 dividend increase is expected to be significantly lower than this year’s 14.2% rise. 

It’s also worth noting that the company’s performance is inherently dependent on the weather. Regardless of what management does, if the wind doesn’t blow, the fund will experience a bad quarter.

Nonetheless, I feel that’s baked into the prices we pay for wind-focused investments. It’s a sector benefitting from government backing and renewed investment under Labour. The lifting of a de-facto ban on onshore wind farms should be a long-term boost.

All-in-all, I’d back this firm to deliver double-digit returns over the long run. That’s the 7.5% dividend yield — which will rise relative to our buying price today — and share price appreciation of at least 2.5% annually.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

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.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat Uk Wind 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 »