Investing in FTSE shares is a terrific way to build long-term and sustainable passive income. And with many UK shares trading at pretty cheap valuations by international standards, the yields offered to British investors are also quite impressive.
So let’s say someone wants to have an extra £500 coming into their bank account each month. How much money do they need to invest to achieve this goal?
Estimating income requirements
Earning £500 a month is the equivalent of £6,000 a year. And based on the current 3.3% average yield of the FTSE 100, this level of income could be theoretically supported by roughly £182,000.
Sadly, not everyone has this sort of money just lying around. But the good news is by initially investing £500 each month, investors can gradually build wealth to reach this milestone.
With this approach, assuming FTSE shares continue to deliver an average return of around 8% a year, investors can begin reaping the rewards in roughly 15 years when starting from scratch. Obviously, this timeline is far less than ideal. Fortunately, there’s another investing strategy which could drastically shorten the waiting time without needing to put in more money each month.
The power of stock-picking
Rather than matching the stock market’s performance, investors can aim to beat it. By being selective and only investing in the best businesses, it’s possible to earn investment returns far greater than 8% a year. And those who used this strategy to buy shares of Ashtead Group (LSE:AHT) 15 years ago have experienced this first-hand.
The equipment rental group’s massively successful expansion into the US construction market resulted in game-changing levels of growth. Its revenues and profits vastly outpaced competitors who, at the time, were still focused on selling gear to construction workers rather than renting them out at affordable prices.
By recognising the shifting trends early, Ashtead became an industry titan, stealing market share and delivering jaw-dropping returns for shareholders. In fact, since 2010, investors have enjoyed a staggering 5,100% return, averaging 30% a year.
For reference, investing £500 at this rate surpasses the £182,000 threshold within less than eight years. And those who held on for the full 15-year period are now sitting on just shy of £1.7m!
Is Ashtead still worth buying in 2025?
Even in 2025, demand for rental equipment across the construction industry, as well as other sectors such as TV and film, continues to rise. But with Ashtead already controlling the lion’s share of control across its key markets, the days of 30% annualised returns are likely behind it.
While management’s attempting to expand into new markets like Canada, sales and earnings performance are currently dominated by the group’s performance in America. And with the current economic climate, demand’s been quite weak. As such, Ashtead has actually underperformed versus other large-cap FTSE shares since 2022.
Of course, that could quickly change if market conditions improve in the US in the near term or if international growth accelerates in the long term. Personally, I think this business still has much to offer. So for investors seeking to build a custom portfolio, taking a closer look at Ashtead’s potential could be a good place to start.
