In 2025, having some extra income is exceptionally handy. With inflation driving up the cost of living, a lot of households are feeling the pinch. But those who have been putting aside some money from each monthly pay cheque to invest are in a much stronger position.
Given enough time, capitalising on the compounding returns of stocks can unlock a substantial income stream. Perhaps even up to £20,000 a year. Here’s how.
Earning another income stream
While everyone’s in a different financial position, mustering a spare £500 each month from working a full-time job can go a long way. In fact, doing this consistently and investing at an 8% annualised rate is enough to build a half-million-pound nest egg within roughly 25 years.
Once surpassing the £500,000 threshold, applying the 4% withdrawal rule generates an extra passive income stream of £20,000 a year. While that’s an exciting idea, there’s a glaring issue – not everyone has 25 years to wait.
Investing requires a long-term horizon to maximise the probability of success. While some explosive penny stocks could deliver substantial gains in a short space of time, this often devolves into speculation with lottery-like odds.
However, even when focusing on more established enterprises with proven track records, it’s possible to enjoy returns far better than 8%, accelerating the wealth-building journey. And perhaps a prime example of this worth considering is the London Stock Exchange Group (LSE:LSEG) itself.
A critical financial institution
Over the last 20 years, this company has played a pivotal role in almost every British investor’s wealth-building journey, powering the exchange of UK shares itself.
The firm earned handsome fees for doing so, and with more businesses joining the London Stock Exchange over the years, the company has generated an ever-expanding income stream that’s help grow its market-cap substantially.
In fact, over the last 20 years, shareholders have reaped a total return of 2,157% – the equivalent of 16.9% a year. And anyone who’s been drip feeding £500 each month at this rate is now sitting on a comfortable pile of £982,946 – surpassing the £500,000 threshold within just 16 years (almost a decade faster!).
Still worth considering in 2025?
With weaker domestic economic conditions hampering demand for new IPOs, London Stock Exchange Group’s primary source of revenue in 2025 actually stems from its data & analytics business. With other companies paying expensive subscription fees to access its APIs and analytics platform, the group enjoys a steady and predictable stream of cash flow that remains stable even during economic wobbles.
There are concerns of subscription slowdowns, particularly as the firm sunsets older data platforms like Eikon, pushing some customers into the arms of competing data providers. And with some revenues still linked to market activity, there’s an element of cyclicality to cash flows.
However, with institutions relying increasingly on having the best access to data to train artificial intelligence (AI) trading models and the long-term demand for a British stock exchange is still intact. This enterprise may continue to be a long-term market beater.
That’s why I think investors seeking to earn some extra income in the long run may want to consider digging deeper.
