£20,000 in savings? Here's how I would aim to turn that into an annual income of £83,247

I would be more than happy to have 20 grand to start investing today. It's easy enough to work for a tax-free second income.

If I had this money, this is what I would do with it.

A whole world of options

My first move will be to start a stocks and shares ISA. Doing so will protect my gains from taxes, and open up a sea of ​​investment opportunities to help grow my wealth over time.

I will be able to buy high quality UK dividend stocks like this HSBC or growth stocks like Amazon.

I mention HSBC because, despite being a shareholder, I have never banked with it FTSE 100 it is strong. But recently I saw a decent presentation of new customers, so I jumped from my bank.

Meanwhile, e-commerce juggernaut Amazon needs no introduction. It's on track for $1trn in revenue (that's followed by 12 zeroes!) within the next decade.

Hardly a few days go by without me ordering something from Amazon. However strangely I have never owned shares despite being a long time customer.

The stock is up nearly 1,100% in 10 years, so this was a foolish omission from my portfolio.

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FTSE 100 share I would consider

So, what kind of investment can I start with? Well, one that I'm going to stick right where it's going to be Scottish Mortgage Investment Trust (LSE: SMT).

This FTSE 100 fund has built a portfolio of exciting global growth stocks from both the public and private markets. Unlike me, it wasn't too late to invest in Amazon. In fact, it started buying shares way back in 2005!

Putting my money in Scottish Mortgage shares will give me instant diversification across around 100 companies, including Nvidia, Spotifyand the parent of Facebook and Instagram Meta Platforms.

Also, I was getting extraordinary exposure to the private company SpaceX. The reusable rocket company continues to outrun its competition and cost a record $210bn back in June.

Since then, SpaceX has facilitated the first ever privately funded spacewalk. The next big goal will be to return to the Moon, and eventually Mars to humanize the planets.

One thing to remember here is that the portfolio is heavily skewed towards high growth stocks. If the market turns this way, trust stocks may suffer.

However, I would expect the continued growth of top assets such as Amazon and SpaceX to be reflected in a higher Scottish Mortgage rate over time.

Up to £83k

For a portfolio of such stocks, I think it makes sense to aim for an average return of 10%. This is a ball-park estimate for the stock long term.

In this scenario, my £20k compounded over 30 years would be £348,988 (not including any stadium fees). That would be a good result, although it is not guaranteed.

However, if I add money along the way, my final result may be completely changed.

For example, if I invested an extra £8,000 a year – the equivalent of £666 a month – while still generating that 10% return, I could get to £1,664,940 in the same period. It's amazing!

Then, I can focus on income stocks (I make sure my portfolio is diversified because equities are not a sure thing). With a yield of just 5%, my portfolio would be generating a second annual income of £83,247.