£20,000 in savings? Here's how I would aim to turn that into a second income of £40,543!

What is £20,000 worth? That may sound like a silly question. It costs £20,000, now. But what if it could be more than £40,000 in the future? Not as a sum of money, either, but as per year second currency?

I think that is possible. But turning £20K into an annual income worth more than double that (and a huge capital gain) is hard work – it takes time and the right strategy. Here's how I do it, in three steps.

First step: move the money to the right place

My plan is about earning money in the form of dividends. So I need to be able to use it to buy shares.

To that end, my first move would be to open a brokerage account or a Stocks and Shares ISA and put money into it.

Step two: spread between five to 10 blue-chip stocks

Next I would invest equally in every five to 10 blue-chip stocks.

Why not one? The unexpected can happen, so I need to spread my risk.

I would look for good businesses with attractive valuations, that I felt could make a lot of money and pay regular dividends for decades to come. yes, decadesnot for years.

Step three: Add up the dividends

I can reinvest dividends by buying more shares.

This is like a turbo charger for my investment of choice (hopefully a good one). Say I can compound my £20K a year at 8%, after 42 years my portfolio should be more than that. half a million. If I could invest that to yield 8%, I could earn a second income of £40,543 a year.

I know – 42 years is a long time (or it seems that way at first, at least). As I said earlier, this is a serious process and it takes time. (I could always start drawing my salary early, in fact at any stage – it's because I will need to pay less).

So, what kind of stocks can you buy?

The theory sounds fine and dandy.

However, in the long run, a compound annual growth rate of 8% is more difficult to achieve than it may sound. After all, we need to consider bad or flat years as well as good and glorious ones.

I think it is possible, if one chooses the right sharing.

Let me illustrate my approach by referring to the type of blue-chip share I have in mind: Legal & General (LSE: LGEN).

Assessing my blue-chip investment list: is it in an industry where I expect to see significant customer demand over time? Check out. Does it have a competitive advantage? Check it out, thanks to the iconic product and existing customer base. Is the rating attractive in my opinion? Look: a market capitalization of £13.4bn looks good to me.

What about accidents?

One that I see is a financial crisis that hurts demand as much as commodity prices fall. That could reduce dividends, as it did in the last financial crisis.

paid a dividend of 9.1% compared to the previous trading day. I am excited about its future.