It doesn’t take that much money to start earning a second income in the stock market. In fact, as little as £5 a day is sufficient to start earning a decent amount in the long run. That’s because by regularly investing a small amount, investors can capitalise on the power of compounding.
Looking over the last 12 years, the FTSE 100 has delivered a total annualised average return of 7.5%. Those who started investing £5 a day back in 2012 are now sitting on a portfolio just shy of £50,000. Around half of that has been pure profit. And by following the 4% withdrawal rule, that roughly translates to a £2,000 second income with a strategy as simple and passive as index investing.
But for those who decided to pick individual stocks, their portfolios could be worth considerably more today. At least, that’s the case for Rightmove (LSE:RMV) investors.
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The UK’s leading property portal
Today, Rightmove is the go-to platform for finding new properties to buy or rent. This journey to industry dominance hasn’t been smooth. However, shareholders who’ve held on since 2012 have been rewarded with an impressive 14% total annualised return.
That’s almost double what the FTSE 100 achieved over the same period. And investing £5 a day over the same period at this elevated rate would have pushed the portfolio value to approximately £83,000 generating a £3,320 passive income stream.
Rightmove is subject to the cyclicality of the property market. And in the short term that has created — and likely will continue to create — hurdles and headaches. However, the long-term demand for housing continues to climb alongside the population. And since its business model operates at high margins, the firm’s ability to generate excess cash is what’s propelled it to becoming the UK industry leader with an estimated 86% market share.
That’s despite fierce competition at home and abroad. And it even resulted in a failed takeover attempt by an Australian peer called REA Group earlier this year. That’s why I think this business could be worth a closer look for growth investors.
Obviously, with so much growth already under its belt, there’s no guarantee that Rightmove will continue to deliver double-digit returns for new shareholders today. But it goes to show that sucessfully picking winning businesses can drastically improve a portfolio’s performance and, in turn, the second income it can generate.
Finding winning stocks early
Rightmove is an example of a tremendous success story. But not all stocks have been so fortunate, with most failing to deliver market-beating returns. So, how do investors determine which stocks are worthy of investment?
There are a lot of factors to consider. However, a good place to start an investment investigation is to search for competitive advantages. When Rightmove first started making waves, there weren’t many online property portals to choose from.
The real estate sector has a reputation for slow innovation, granting the firm both a first-mover advantage and a technological edge far superior to browsing individual broker websites and brick-and-mortar stores. Today, its technological edge continues through sheer volumes of data used by buyers and sellers.
Therefore, when hunting for future winners, investors should seek out similar traits among businesses that the market is seemingly underestimating. At least, that’s the strategy I use for my portfolio.
