How much would an investor need in UK shares to earn an £833 monthly passive income?

For any investors hoping to make a passive income, UK shares might be one path towards the goal. Let’s take a look at how and why.

| More on:
photo of Union Jack flags bunting in local street party

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.

Let’s say an investor wanted to start from nothing – no savings or anything at all – and build a £10,000 yearly income stream. A monthly £833 could be a sweet addition to the pension pot. It could simply free up a day at work or so. And, thanks to the somewhat unique nature of this country’s stock exchange, UK shares might be well-suited to help get there. 

Let’s take a look at how it might happen, even by investing just £200 a month.

Global revenues

To start with, the term “UK shares” is something of a misnomer. Companies on the London Stock Exchange rarely manage operations 100% within our borders, and many of them are closer to the opposite. 

The FTSE 100 draws 80% of revenues from abroad. The FTSE 250, with its smaller, more domestic-focused firms, draws 50%. That’s a good thing for a would-be passive income seeker as it means the growth isn’t chained to what’s going on in this country.

The FTSE 100, by the way, is on course to post its third-best month in a decade, only being surpassed by bouncebacks after Covid and Liz Truss. Why? Because a strong dollar has boosted income earned abroad (among other reasons).

Another objection people have with UK shares is their recent underperformance. This is true for the FTSE 100, at least. Footsie shares have returned around 7% since the 1980s. That’s not so good compared to the 10% rule of thumb many aim for. 

But it’s worth bearing in mind that the index is defensive. Its big banks and miners and the like do better in choppier economic conditions and global stocks have been on a bull run of late. That can mean a lot of safety if the economic outlook gets gloomier

One FTSE 100 stock of this nature is Diageo (LSE: DGE). Although it may seem counterintuitive, alcohol is firmly a defensive stock. When the budgets are tight, the beers and wine are rarely first on the chopping block.

Irish tipple

It’s a true global company, too. Diageo owns a wide range of household names like Smirnoff, Tanqueray, and Johnnie Walker that are sold on every continent. 

The jewel in its crown is surely Guinness and a testament to the company’s brand strategy. With newspaper articles saying the stout is Gen Z’s favourite drink, and it having to be rationed in London pubs, well, that’s the kind of long-lasting appeal that can make a terrific investment. 

Risks exist, such as declining consumption among younger people. But overall, I think it’s one to consider. And full disclaimer, I own a position in the company myself.

So how does an investor get to that £833 a month target? Well, the £200 monthly outlay will need time to build. 

As time goes on, the money would hopefully grow and grow as dividends roll in and share prices increase. I don’t think a 9% long-term target is unreasonable from quality stocks like Diageo. 

If withdrawing at a 4% rate, then a £250k portfolio is required. On the above terms, that would be passed in the 27th year. 

The number can be tweaked to bring that rate up or down but either way, I’d say it’s a plan worth considering. 

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.

John Fieldsend has positions in Diageo Plc. The Motley Fool UK has recommended Diageo 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

Happy African American Man Hugging New Car In Auto Dealership
Investing Articles

1 red-hot stock I love in my Stocks and Shares ISA!

This investor adores one particular high-quality share in his ISA portfolio. So much so, he just can't see himself parting…

Read more »

Investing Articles

With an 8% yield and a P/E below 12, Taylor Wimpey looks in deep value territory

Harvey Jones wants to make a bit of noise about Taylor Wimpey shares. The FTSE 100 stock may be volatile…

Read more »

A young Asian woman holding up her index finger
Investing Articles

Up 8% today, is this one of the FTSE 100 best growth shares to buy?

Looking for the best FTSE 100 growth shares for a winning portfolio? This soaring blue chip is worth serious consideration,…

Read more »

Investing Articles

With yields over 7%, here are two FTSE 100 dividend shares to consider in 2025

As the FTSE 100 trades near all-time highs in 2025, some of its top dividend shares still offer highly attractive…

Read more »

Investing Articles

Here’s why Coca-Cola HBC stock jumped over 9% in the FTSE 100 today

This stock was flying to a record high in the FTSE 100 today, boosted by a strong set of earnings.…

Read more »

Investing Articles

1 FTSE 100 stock an investor consider for a Stocks and Shares ISA if Cash ISAs get canned

The talk in the papers is of the Cash ISA getting axed, but the Stocks and Shares ISA seems secure.…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

A 5.5% dividend forecast? £2k invested in Lloyds shares could earn an investor this much by 2027

Jon Smith talks through the dividend forecast for Lloyds stock in the coming years and weighs up whether it could…

Read more »

Investing Articles

How much in savings would investors need to target a £3,000 monthly passive income?

Our writer outlines a simple recipe to earn passive income from shares. The ingredients include diligent saving, ample time and…

Read more »