How can I use a bare Stocks and Shares ISA to aim for an income of £1,000 a month

Thousands of Shares and Shares ISAs in the UK today contain over a million pounds. They all started with nothing.

Can we emulate those long-term success stories?

Unless we’re very lucky, we’d probably need to be able to invest close to the full £20,000 ISA allowance each year to reach millionaire status. But we can reach £1,000 a month in passive income with little money.

Here’s the bottom line

It all depends on three key factors:

• How much can we invest in a year?
• How long can we leave it there?
• How much can we earn each year?

How much we have is a very individual thing. I have seen people living a life of bullying to get away with as much as possible. Then you retire and die without getting a chance to enjoy it.

For me, it’s balance. I invest as much as I can, but I don’t cut back on myself and my family.

Our time scale is subjective as well. How old we are, and what level of final salary we need is important. I’m going to work towards a £1,000-a-month goal and see how long it takes.

Stock market profit

Finally, how much money are we likely to make each year?

I FTSE 100 it has produced an average annual return of 6.9% over the past 20 years. What stock should I expect to approach in the future? I will choose National Grid (LSE: NG.) for example.

We are looking at a forecast dividend yield of 4.8% in 2025. And if the shares keep pace with inflation over the long term, that could increase the total to 6.9%.

Balanced ISA selection

The first thing I notice in the chart above is that share prices can fluctuate. To me, that means three things.

First, I look for stocks that pay decent dividends. Allocations are never guaranteed, and are sometimes cut. But they give me less stress than watching the daily share price movement. And National Grid’s dividend has a good track record of stability.

Second, I go for diversification, to reduce my overall risk if the stock goes bad. There are enough good stocks in the FTSE 100 to make me confident that I can achieve my goals in the long term.

Third, I’ve said it, and I’ll say it again. Long term, that’s what it’s all about.

What is the benefit?

Using the National Grid example, how quickly can I earn £1,000 a month?

I calculate that investing £500 a month for 20 years is all I have to do. With dividends reinvested, the annual return of 6.9% could grow to £252,000. And a dividend yield of 4.8% could pay £12,000 a year.

Even with £1,000 a month I could be looking at a cool half a million in that time, generating a monthly dividend income of £2,000.

There is no guarantee of any of this. And National Grid is just an example, not a recommendation. But buying high-quality UK dividend stocks and holding them for a few decades isn’t just my top choice, it’s my only decision.