A second income of £20,000 a year — the equivalent of roughly £1,667 a month — can be life changing. While that level of passive income might seem ambitious, it’s a realistic long-term goal for investors willing to commit to regular saving, disciplined reinvestment, and a focus on quality.
To achieve that income from investments, a portfolio of around £400,000 would be required, assuming a 5% average yield. That figure might sound intimidating, especially when starting from zero. But compounding, when harnessed over years or decades, is a powerful force.
The key is to start investing early, ideally using a Stocks and Shares ISA to shield gains and dividends from tax, and to reinvest income during the early accumulation phase.
Getting to £400k
The most important factor in growing a portfolio is consistency. Regular monthly contributions — even modest ones — can build significant capital when combined with reinvested returns. Patience matters too. Periods of market weakness often create opportunities to buy high-quality companies at attractive valuations, and staying invested through cycles tends to reward those who can take a long-term view.
Take this example: £500 invested every month for 21 years with an annualised return of 10% will lead to £426k. And while some investors may think 10% is intimidating, it’s not impossible. But it’s worth remembering that poor investment decisions can result in us getting a lower return or even losing money.
A lot of the growth will come from compounding. Over 21 years, £500 a month equates to around £126,000. That means the remaining £299,000 is coming from interest. And the gap between contributions and interest income accelerates over time. It’s the snowball effect.
What’s going to power my growth?
New investors may benefit from building positions slowly, starting with one or two high-conviction stocks each month. This allows time to research each business and understand market dynamics.
Jet2 (LSE:JET2) could be one to consider. Despite remaining on AIM for now, the airline and holiday company is a future FTSE 100 candidate. It has a market capitalisation of £3.3bn, a net cash position, including customer deposits, approaching £2.5bn by 2026, and strong earnings momentum. Analyst sentiment’s firmly bullish, with a 12-analyst consensus Buy rating and an average price target of 2,164p. That’s 32% above the current share price.
The valuation’s undemanding despite pushing up from April’s lows. Jet2 trades on just 7.8 times forecast 2025 earnings, falling to 6.4 times by 2027. On an enterprise value-to-EBITDA basis, it’s even more compelling, at just 0.98 times in 2026 — well below aviation and leisure peers. Earnings per share are forecast to grow steadily, supported by a clean balance sheet and competitive fuel costs.
Risks include rising labour costs and volatile oil prices, both of which could pressure margins. Nonetheless, Jet2’s fundamentals suggest it may be gaining altitude at an attractive price. It’s well-represented in my portfolio.
