To reach that point, investors like myself need to have a large enough portfolio to throw off a healthy second income. Fortunately, the long-term growth potential of the stock market means individuals don’t need to invest colossal sums to reach this goal. But it does need a patient and balanced approach.

Here’s how £500 a month in UK and overseas stocks could eventually build a passive income above £64,000.

Diversifying for strength

Whether someone is seeking growth or dividends, building a diversified basket of shares is critical for targeting long-term returns. It allows an investor’s portfolio to better absorb individual shocks. What’s more, this approach can produce a consistent return over time by balancing higher-risk cyclical shares with defensive stalwarts.

This strategy doesn’t need investors need to settle for sub-par returns either. Harry Markowitz — widely considered to be the creator of modern portfolio theory — once described diversification as “the only free lunch in investing.”

Today’s investors can choose from thousands of stocks, investment trusts and exchange-traded funds (ETFs) from around the world. This gives each one of us the power to build a bespoke portfolio suited to our own investment goals and attitude to risk.

Seven picks

Let’s look at what a diversified portfolio might look like:

There might be only seven holdings in this portfolio. But in total, they provide exposure to a whopping 773 different companies, spanning different sectors, regions, and providing a mixture of value, growth and dividend shares.

JD Sports and Polar Capital’s share price have dropped more recently. But they’ve still delivered returns over the long term, and are tipped by analysts as robust recovery plays.

During the last 10 years, this portfolio would have delivered an average annual return of 11.9%. Past performance is no guarantee of the future. But it this continues, investing £500 here each month would grow to £922,923 over 25 years.

If this was then invested in 7% dividend stocks, our investor would enjoy an average annual passive income of £64,605.

A top ETF?

For me, funds like the iShares Edge MSCI World Value Factor ETF are great ‘cheat codes’ for building a well-diversified and high-performing portfolio easily and affordably. It’s why I own several in my own portfolio.

This one holds shares in roughly 400 global companies. It provides “direct investment in global equities which are undervalued relative to their fundamentals,” like book value and predicted earnings.

This approach gives the fund strong growth potential by targeting quality companies priced below their intrinsic value. Key holdings include Qualcomm and Intel, for instance, trading at a substantial discount to industry leader Nvidia and which could theoretically deliver greater long-term share price growth.

Its high weighting of tech stocks could make the ETF more vulnerable during downturns. But I still believe it’s a great fund to consider as part of a diversified portfolio.

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This is perhaps no surprise given the uncertain macroeconomic and geopolitical landscape. By buying shares, investment trusts and exchange-traded funds (ETFs) that offer (or are focused on) value, investors enjoy a cushion that can help protect them from share price volatility.

The following UK stocks and funds have rocketed in value so far this year. And I think they can continue, making them top picks to consider.

Great fund

As its name implies, the iShares Edge MSCI World Value Factor UCITS ETF (LSE:IWVL) is designed with value in mind. And it’s risen 11.2% in 2025.

The fund holds 398 global shares in total, and searches for cheap shares based on three key metrics: the price-to-book (P/B) ratio, forward price-to-earnings (P/E) earnings, and enterprise value-to-cash flow from operations (EV/CFO).

What I especially like is its wide diversification across geographies, shielding investors from regional issues that could hamper performance. Of the 23 developed markets it covers, the US is its single largest, representing 37.1% of the fund.

The fund’s also well spread across a variety of sectors to reduce risk and provide a multitude of investment opportunities. Be aware though that information technology’s its biggest sector, which could impact performance during economic downturns.

Top trust

The Fidelity Special Values (LSE:FSV) targets “unloved companies that are entering a period of positive change that the market has not yet recognised“. It’s a strategy that’s paid off spectactularly in 2025 — this investment trust’s risen 21.1% in value in the year to date.

This could be down to its focus on UK shares, a region which has been overlooked for years due to political turbulence and weak growth. Cheap FTSE 100 stocks it owns include BAE Systems, Standard Chartered and GSK.

Veteran fund manager Alex Wright has seen the trust more than tripled in value since he took the helm in 2012. I think it can continue impressing, despite the higher regional risk it carries compared with global trusts.

Today, Fidelity trades at an 3.9% discount to its net asset value (NAV) per share, providing something extra for fans of cheap stocks.

FTSE 100 bargain

In my opinion, HSBC‘s (LSE:HSBA) one of the best FTSE 100 bargain shares available to investors today. The company trades on a forward P/E ratio of 9.1 times, and carries a 5.4% corresponding dividend yield. This solid all-round value comes despite HSBC’s incredible 19.2% share price rise in 2025.

Investing in Asian banks offers higher-than-usual risks than normal. China’s economy’s picking up speed following underperformance in recent years. But there’s a chance US-led trade tariffs could choke off its recent strong momentum.

That said, I still believe the potential benefits of owning HSBC shares outweighs the risks. Personal wealth levels and population sizes are soaring across its emerging markets, driving revenues skywards. And the bank’s expanding rapidly to capitalise on this enormous long-term opportunity.

The post These dirt cheap stocks, investment trusts and ETFs have surged in 2025! Time to buy? appeared first on The Motley Fool UK.

Bargain hunt

Owning a selection of value shares can deliver substantial capital appreciation over time. The theory is that these companies’ share prices will eventually correct higher as the market wises up to their earnings potential.

The iShares Edge MSCI World Value Factor ETF‘s (LSE:IWVL) a fund that provides investors with this opportunity. It holds positions in 398 businesses across the globe, with a particular focus on US and Japanese shares (these comprise roughly 40% and 22% of the fund respectively).

A large weighting of tech stocks (25% of the fund) also means large positions in the likes of Cisco Systems, Qualcomm and IBM.

Annual returns haven’t been especially high over the past decade, averaging 5.5%. If this continues, an investor could endure worse returns than if they purchased other funds.

Yet I still think it’s a good stock to consider to create a balanced portfolio.

Gunning for growth

Investors could offset the weaker returns here by also purchasing the Invesco EQQQ Nasdaq 100 ETF (LSE:EQQQ). The average yearly return here stands at an impressive 18%.

As with value stocks, investing in growth shares provides scope for substantial capital gains. This is because these companies typically experience above-average profit increases that drive share prices through the roof.

The fund’s focus on the Nasdaq means investors here also have high exposure to technology companies. This can mean poorer returns during economic downturns.

That said, it can — as we’ve already seen — provide significant returns as the digital economy explodes. Looking ahead, phenomena such as artificial intelligence (AI), quantum computing and robotics could deliver stunning investor profits.

Significant holdings here include Nvidia, Apple and Microsoft.

Targeting dividends

The final ETF to consider is the Xtrackers FTSE 100 ETF (LSE:XDUK). Investing in Footsie-focused funds has a range of advantages, including diversification across market-leading companies and exposure to a stable and mature market.

Another notable perk is that, as an asset class, British blue-chip shares have a strong culture of paying dividends, underpinned by some robust, cash-rich balance sheets. Some of the index’s largest companies include dividend darlings Shell, Unilever and HSBC.

Investing in dividend shares can help provide a healthy return across the economic cycle. Since early 2015, this fund’s delivered an average annual return of 6.4%.

UK shares have underperformed overseas equities in recent years, and this may continue as the domestic economy struggles. But I still expect the FTSE 100 to be a great place to target dividends.

A passive income of almost £25k

Past performance isn’t always a reliable guide to future returns. But if the long-term returns on these ETFs remains unchanged, a £25,000 lump sum investment spread equally across them would lead to an £495,935 (excluding trading fees) after 30 years.

Investing this in 5%-paying dividend shares could then — if broker forecasts are correct — provide a £24,796 passive income for life.

The post Investing a lump sum? 3 ETFs to consider in 2025 to target a near-£25k passive income! appeared first on The Motley Fool UK.

I invest based on what returns I can expect to make over the long term. This is because stock markets always have a way of bouncing back strongly following corrections and crashes.

Buying in at the bottom gives me a chance to enhance my eventual returns. So which shares am I looking at today? Here are two of my favourites — along with a top-class exchange-traded fund (ETF) — that I’ll consider buying when I next have cash to invest.

All-rounder

Vodafone Group (LSE:VOD) shares look dirt cheap across a variety of different metrics. Its forward price-to-earnings (P/E) ratio clocks in at just 9.9 times, while its corresponding dividend yields stands at 7.3% for this year.

And the FTSE 100 telecoms giant trades on a price-to-book (P/B) ratio of just 0.4. Any reading below 1 indicates that a share is undervalued.

Vodafone’s share price has plummeted on worries over a US recession and its impact across the globe. However, telecoms profits tend to remain broadly stable across the economic cycle, suggesting to me that this sell-off is unwarranted.

On the other hand, the business does face significant competitive pressures. However, I still think Vodafone has excellent investment potential as our increasingly digitalised lives drive telecoms demand.

Defence star

Babcock International Group‘s (LSE:BAB) shares also look very cheap at current levels. City analysts think annual earnings here will soar 42% this financial year. And so the defence giant trades on a price-to-earnings growth (PEG) ratio of 0.3.

Like the P/B ratio, a value below 1 indicates exceptional value.

Just like Vodafone, Babcock operates in a highly defensive sector, and so earnings should be unaffected by broader economic conditions. In fact, the outlook here is pretty encouraging as the worsening geopolitical landscape prompts companies to rapidly rearm.

But I have to remember that defence timing contracts can be unpredictable. It’s a problem that can adversely affect share prices along with dividends.

A top fund

The iShares Edge MSCI World Value Factor UCITS ETF (LSE:IWVL), in its own words, was established to “capture undervalued stocks relative to their fundamentals.” Today it holds positions in 399 shares spread across North America, Europe and Japan, which in turn gives investors a great way to spread risk.

The fund isn’t immune to bouts of extreme volatility, as the last few days have shown. But its focus on cheap stocks could limit price falls if market conditions worsen.

For example, it’s keen on the semiconductor industry but has steered clear of expensive Nvidia shares. Instead it’s opted for the likes of Intel and Qualcomm.

These business trade on forward P/Es of 19.9 times and 16.1 times, respectively. Both readings are far below the multiple of 39.5 times for Nvidia shares.

Just under a quarter of the ETF’s money is locked into information technology stocks. So it could be very vulnerable in the event of a US recession. But on balance I still think it’s a great fund to consider.

The post 2 dirt cheap UK shares and a bargain ETF I’d buy after the sell-off! appeared first on The Motley Fool UK.