Passive income ideas I’d use for £20 a week

Christopher Ruane goes over the details of some passive income ideas he could put into action with as little as £20 a week.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I find passive income appealing because it can boost my earnings without bloating my work hours. But not all passive income ideas are equal. Some actually involve a lot of time. To me they don’t seem very passive at all.

That’s why one of my favourite passive income ideas is tucking money away regularly in a Stocks and Shares ISA and using it to buy dividend paying shares. Here is how I would do that with £20 a week.

Regular saving

£20 a week might not sound a lot – but it adds up to just over £1,000 a year. That’s enough to start getting invested in more than one UK share. That means that I could reduce my risk by diversifying across a variety of business areas and companies.

I wouldn’t start investing immediately, though. Most ISAs charge transaction fees. To reduce the proportional impact, I would wait until I had at least a few hundred pounds saved up to invest. That would only be three months or so, if I was saving £20 a week.

Using time wisely

Those few months of saving before making my first investment would be an ideal opportunity for me to do a bit more research into specific passive income ideas. That way, I would be able to form a better informed view on the possible opportunities and risks of specific investments.

For example, to generate passive income, I would consider investing in high yielding shares. But sometimes shares have a high yield for a reason. Maybe the market thinks a company’s current dividend payout is unsustainable and so factors in the possibility of a future cut.

Choosing specific passive income ideas

Although I’d do more research, some shares already appeal to me as passive income ideas.

For example, tobacco giant Imperial Brands yields 8.8%. So for every £100 I put into Imperial shares now, I would hope for annual passive income of £8.80. That is if the current dividend level stands. It could increase, as it did this year when the dividend was raised. Then again, it could also be cut as it was last year. Risks such as declining cigarette consumption in some markets are a threat to profits and thus dividends.

I would also consider investing in some passive income ideas from the finance sector. I like the look of the insurer and financial services provider Legal & General for my portfolio. Its iconic brand is a strong asset in my view. That makes it easier and cheaper to attract new business. I also like the company’s progressive dividend policy. Currently it yields 6.8%. One risk, as with any insurer, is maintaining underwriting quality. If that slips, it can hurt profits.

Building a passive income stream

After a year I could have roughly £500 invested in each of Imperial Brands and Legal & General, with prospective annual passive income of around £156. But if I kept putting away £20 a week, my investment pot would keep growing.

While I could take the dividends as passive income, I could also reinvest them. That would build my capital faster and I could put it to work on a wider range of passive income ideas.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »