You probably don’t need me to tell you that the idea of earning a second income is very attractive, especially if it involves relatively little effort. In time, it may even be enough to allow someone to reduce the hours their main job takes up. And I’d say that the stock market is the best opportunity most of us have for making that money. This is assuming we can stay the course if things get choppy, of course.
So, just how much money does an investor already need to have to aim for, say, £1,500 per month (or £18,000 per year)?
The first step
Before getting to that, I reckon it’s important to start with a good foundation.
In my opinion, using a Stocks and Shares ISA to hold investments is as close to a ‘no brainer’ as one can get. Doing so means any profit or dividends are completely shielded from HMRC.
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Having opened an ISA, what does one do next?
One option is to invest money into an index tracker. As it sounds, this type of fund ‘tracks’ the return of a specific group of companies. The FTSE 100 is the best known index in the UK. And the great thing about funds following it is that they also generate dividends.
The only problem with this is that the dividend yield on the FTSE 100 is about 3.1%. According to my calculations, this would mean an investor would already need to have a smidgen over £580,000 in their ISA.
But there is a way of getting that big sum down.
Searching for higher yields
One of the great things about being a UK investor is that there’s no shortage of stocks offering more than the FTSE 100.
One example that I hold myself is Persimmon (LSE: PSN). As one of the UK’s biggest housebuilders, it’s arguably positioned well to gain from the government’s pro-housing agenda. I particularly like that its homes tend to be more affordable than rivals.
As thing stand, the shares are also down to yield 5.1% in 2025, rising to 5.4% in 2026, if analysts are correct. Using the latter, an investor would need an ISA pot of around £335,000 to generate that £1,500 per month.
I get it — that’s still a hefty amount of money. But it does demonstrate how looking for high-dividend stocks has the potential (and that last word is key) for getting an investor to their second income goal much sooner.
Second income can’t be guaranteed
I need to emphasise that last point one more time. There’s no sure thing in the stock market.
Part of the reason Persimmon shares in particular offer such a juicy yield is because the share price has been suffering. The ongoing cost-of-living crisis and wider economic uncertainty aren’t exactly boosting demand for new homes. Oh and there’s next month’s Budget — and its impact on the property market — to ruminate on.
So, how might an investor protect themselves?
Well, we’re big fans of spreading money around a diverse bunch of stocks at Fool UK. By doing this, any dips in income — perhaps as a result of some companies cutting their distributions — shouldn’t be catastrophic.
I’m crossing my fingers that Persimmon won’t need to be one of them.
