The Motley Fool

My plan to use this stock market recovery to create a passive income for future years

Image source: Getty Images.

Creating a sustainable and growing passive income is an ambition I and lots of other investors share. The attraction is obvious: if I can create a portfolio that can provide me with an income year after year, then I have options. The option to retire from full-time work, to retire early or to travel the world. If it was easy though, everyone would do it.

Actually, it requires a long-term view, a strategy and goal, grit and determination, and consistency in decision-making. Without these ingredients, I think it’s far harder to make a passive income from investing.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The ingredients needed to make a passive income

The current stock market recovery is, I think, a golden opportunity to create a passive income-generating machine. What do I mean by that? I simply mean a system that optimises my investments, like a machine can optimise lifting heavy objects, for example.

To make the system work, I need to know what I want it to do. This is why having a goal and a strategy is so important. I also need to give it time to start working. In the case of investing this will be giving compounding the time to add significant value over time.

The grit and determination part refers to my need as an investor to stick through periods of underperformance, which is an inevitability. No one can invest in the best-performing stocks all the time. And no one can always have bought them at valuations that mean they can make a reasonable upside. That’s why sticking to a plan, and making only reasonable and well-thought-through tweaks is, in my view, smart.

This brings me on to consistency of decision-making. If I jump about all over the place, chasing the latest stock being tipped on Facebook, I think I’ll reduce my chances of success.

So with that in mind, there are some sectors where I think earnings tend to be reliable and therefore can pay growing dividends through most economic conditions.

Sectors that I’m looking at for dividends

These are the sectors I’m interested in to create a passive income. I’ll start with the riskiest first: housebuilders. The shares are quite cyclical and tied to confidence in the economy and the housing market. Given the government support for both though, I expect housebuilders to do well for a long time. Yields in the good times tend to be on the higher side, which is good from a passive income point of view.

One of the best sectors for reliable dividends is utilities. These regulated companies have great earnings visibility and can forecast what they’ll be earning into the future with reasonable confidence. They are a good place to find shares that combine value and income.

Lastly, I’d look at fast-moving consumer good companies like Reckitt Benckiser and Unilever. These companies are usually more expensive to buy because of their solid earnings, international markets, strong brands and high product turnover. However, they have decent margins and should compound over time giving me passive income and few headaches.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Andy Ross owns shares in Reckitt Benckiser. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.