£12,000 in savings? Here's how I would aim to turn that into a second year income of £45,700

Twelve thousand quid is a good chunk of change to start an investment portfolio. That's more than most people have to play with when they're just starting out. With that kind of money, I've developed a way to aim for a healthy second income in retirement.

Here is my strategy.

Laying the groundwork

Instead of letting my money gather dust in a traditional savings account, I can maximize its potential with a Stocks and Shares ISA. This would be my first place to charge my wealth, free from the clutches of the publican.

This ISA gives me the opportunity to invest in all types of assets, including UK shares, exchange-traded funds and property. I can even pick US tech giants like that SMCI again Nvidia. However, even though those parabolic gains look attractive, building a reliable secondary income requires less volatile assets.

What I am looking for is a slow growing but very reliable investment trust that is divided into many well established companies.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

A very different FTSE 100 trust

Scottish Mortgage Investment Trust (LSE: SMT) has been popular among value seekers for decades.

It provides investors with exposure to a broad range of high-growth private and public companies around the world. Despite the name, much of the focus on US tech stocks is similar Amazon again Tesla. It also offers global diversification into South American, Asian, and European markets. Such companies include the owner of TikTok ByteDancea Chinese e-commerce platform MeituanItalian supercar designer Ferraria Dutch letter maker ASML and the Brazilian giant MercadoLibre.

It's great that the private sector provides exposure to assets that most people wouldn't invest in. Top names here include Elon Musk's. SpaceX and a Swedish lithium-ion battery manufacturer The Northvolt.

Safety in numbers

Since the investment is spread over several regions and industries, the trust is well protected against a single point of failure. However, its heavyweight in US technology stocks such as Nvidia could spell trouble in the coming months. Growing speculation about a possible correction (or even recession) in the US this year has led me to reduce my exposure to US technology stocks recently.

Fortunately, trusts like this allow a safe option for passive investors who aim to avoid market turbulence. Although the share price has been volatile recently, overall it has delivered an annualized return of 10% since August 1994 – higher than either stock. S&P 500 again FTSE 100.

If that growth is delayed, £12,000 can grow to £240,000 over 30 years (with dividends reinvested). That would give a second minimum wage of £24,000 a year for the next decade. But by contributing an extra £100 a month to investments, it can grow to a whopping £457,000. An extra £45,700 a year over 10 years would be a nice retirement income!

Exchange

Naturally, the reliable returns offered by an investment trust are rarely the same as those found in individual stocks. Understandably, many investors may feel that they would be better off managing their own portfolio. This is possible but requires more work and can greatly increase the risk.

Investment trusts may not be the most exciting way to make money but I like the peace of mind they provide. I already own several Scottish Mortgage shares which will be my latest addition when payday comes in September.