I began investing in the stock market in the early 2010s and had to make a decision on what kind of investor I was going to be. Did I want to invest for growth or for income? Each investor is different, and for me I opted against wholly buying dividend stocks for passive investment.
At that time, pre-30, I felt I had time on my side to spend time in the market. (And hopefully see my money put to good work through growth stocks.) Starting out, I was only able to invest small amounts of money – I still am, truth be told! But I followed a strategy of regularly investing no more than £1,000 when I had saved and felt able to ‘lock up’ this money that I likely wouldn’t need in the next three to five years.
Looking back almost a decade later, I wonder what might have happened if I had invested solely in income stocks, with the end goal of a passive income? Of course, that’s still the dream – but dreams aren’t exactly known for being based in reality!
The current FTSE 100 yield is 2.91% as I write. Let’s estimate I was able to save £500 a month, buying shares as passive investments every other month.
In this hypothetical scenario, ‘past me’ might have been able to invest £6k annually. If the average yield of these stocks was 2.91%, then that’s £174.50 in dividends in a year.
Following this same strategy, in the second year my dividends would have amounted to just under £350 in total.
Over a 10-year stretch, I’d be seeing £1,746 returned via dividends annually.
Over 40 years, that figure would be just shy of £7k, the equivalent of under £590 a month.
As I said at the top of this article, every investor’s situation is different. If someone was able to pile substantially more into income stocks per month or year then yes, they’d get a higher passive return on investment through dividends.
But in my opinion, it would take many decades for me to get anywhere near a decent passive income. And I would likely have missed out on some great growth opportunities along the way.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.