Image source: Getty Images
Earning a second income can make life easier and more rewarding for many people. But there are only so many hours in the day. Starting a second job may not be possible or attractive.
Thankfully, there's more than one way to make a second income – and not all of them involve working extra hours.
The appeal of investing in the stock market
For example, like millions of other people, I own shares in large, proven blue-chip companies that make me money just by owning those shares. Such payments are called dividends. That allows me to benefit from the hard work achieved by their leaders who have business experience in their fields.
By doing that, I think I can build a second big income, over time. I wouldn't even need the start-up money.
Save modestly and always invest
Imagine if, right from the start, I set aside £5 each day. That would give me over £1,800 a year to invest. If I decided to use the profits I received to buy more shares instead of making income (a process known as compounding), I would actually have more to invest.
To continue, I'll set up a share trading account, or Stocks and Shares ISA and start putting £5 each day into it.
Why the long-term approach works
Rather than focusing on secondary income right now, my plan involves taking a long-term approach to investing. That means I can't expect to have money to spend on my scheme (assuming I'm going to compound dividends) for years. So what is the appeal?
The longer I save, the more money I save to invest. Moreover, over time, the impact of my integration should grow larger.
Imagine I invest £5 a day and compound annually with a dividend yield of 7% (in this example, I'm not including the impact of share price movements, which could work for me or against me). After 10 years, I should have a share portfolio worth more than £6,000 and receive a second income of around £420 each year.
Finding income stocks to buy
Although 7% is more than the current average FTSE 100 yield, I think is achievable in today's market while sticking to a diverse range of blue-chip businesses.
For example, I own shares in Legal & General (LSE: LGEN). This share yields more than 7% (actually, it currently yields more than 8%). It has set plans to increase its dividend per share by 5% this year and 2% annually in the following years.
That said, no benefits are ever guaranteed and the company can cut them without notice.
Since Legal & General focuses on retirement-related financial services, such as pensions, I think the market it addresses will remain very large for the foreseeable future.
Thanks to a strong product, a large customer base, and special financial experience, I expect that the FTSE 100 company can continue to make great profits with its proven business model.
Another risk I see is sudden market declines that lead to customers withdrawing funds. Meanwhile, this great budget payer continues to help me earn income without working for it!
Source link
