Thanks to YouTube and social media, there’s been an explosion in the number of different passive income ideas out there. But for me, the best way to target a large and reliable second income is by investing using a Stocks and Shares ISA.
Some of the wild and wonderful ideas I’ve seen recently include holiday lets, online courses, app design, and vending machines. I don’t know about you, but the hard work that’s involved in many of these schemes don’t exactly seem passive to me. It’s why I’ve sought to target a dividend income by buying shares, trusts and funds in my ISA.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A simpler journey
I’m not saying share investing doesn’t require any effort. It’s important to devise a strategy and to properly research any assets you plan to buy before handing over any cash.
Yet after this initial legwork, only a little effort is typically needed to grow and tailor the portfolio over time.
Also, the beauty of a Stocks and Shares ISA is protection from both capital gains tax and dividend tax. The same can’t be said for those other passive income methods I’ve mentioned, for which most people would owe a portion of their earnings to HMRC.
Top trust
I also like the ISA method because individuals can buy assets that reduce any upfront work they need to do. I’m talking about investment trusts more specifically. These financial instruments hold assets like equities, bonds, and commodities, and are professionally managed by fund managers.
The JP Morgan Global Growth & Income (LSE:JGGI) trust is one such investment vehicle that stands out to me. Past performance isn’t always a reliable guide to the future. But its 14.4% average annual return over the last decade demands serious attention, in my book.
To put that in context, the broader FTSE 100‘s delivered an 8% comparable return over the period.
A few reasons why I like this JP Morgan trust include:
- Its holds a large contingent of US tech shares with high growth characteristics
- The fund owns shares in 63 global companies, which protects returns from individual company shocks
- These holdings are well diversified by region and industry, reducing risk further and providing exposure to different growth and income opportunities
- It is run by three fund managers with a combined 75 years of industry experience
Like any investment, the JP Morgan Global Growth & Income fund isn’t without risk. In this case, its focus on equities leaves it vulnerable to any broader stock market downturn. But I still think it’s worth serious consideration, and am optimistic it could deliver substantial ISA growth and eventually a large passive income.
Generating a £52k income
Let’s say an investor has £500 a month to invest in a Stocks & Shares ISA. If they can achieve an average 8% annual return across all their investments, they would — after 30 years — have a portfolio worth £745,180.
They could then use this to target an annual income of £52,163 by investing in 7%-yielding dividend shares. All this underlines the wealth-growing power of the stock market and the enormous tax benefits of the ISA.
