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All investors want to earn passive income for their future needs, but many feel they don’t have enough money to allocate to investments to earn significant returns.
I’m here to show that investors don’t need to break the bank to ensure a steady stream of income later in life. What is required is a regular financial commitment and a diversified investment approach.
My £150 a month plan is manageable, but it equates to a tidy £1,800 a year. Over ten years this is £21,600. As all investments fluctuate over the long term, it is unreasonable to believe that my financial investment will increase significantly.
So, how do I build my portfolio to ensure it’s diversified and delivers significant long-term returns? I allocate my money to the following investment sources.
ETFs
Exchange-traded funds (ETFs) are a collection of stocks that trade on an exchange at any time. Actively managed or structured to track a broad index, they provide a low-cost way to gain exposure to a basket of diverse options.
A good example is the popular Stocks and Shares ISA. Data for the 2020/21 tax year shows that the average stocks and shares ISA returned 13.55 per cent.
I personally like it Hargreaves Lansdowne Shares and shares because it offers a low accounting fee of 0.45% and a simple user interface.
Mutual funds
Similar to an ETF, a mutual fund is a pool of assets managed by a professional money manager. The difference is that mutual funds trade once a day after the market closes.
Through mutual funds, investors get access to a professionally managed portfolio of diverse options, including stocks, bonds and other securities.
Each shareholder in the fund participates proportionately in the profits or losses of any given period. High-performing, high-cap mutual funds have returned up to 12.86% over the past 20 years.
Vanguard It’s the biggest mutual fund provider in the world, and that’s where I’m allocating £150. The firm offers options such as index funds, Vanguard ESG funds and targeted pension funds.
Single line stocks
I also like investing in individual stocks, mainly because public companies regularly pay dividends that generate cash for shareholders.
The highest dividend-paying company on the FTSE 100 is the housebuilder. Persimmon At 15%, but the average is around 4%.
When it comes to picking individual stocks, I consider that the company – and the industry it operates in – is future proof. That said, I can reasonably say that it has generated revenue in the developing world.
If so, National grid It’s a good estimate for my portfolio, because we need electricity regardless of the future, and a 4.82% annual dividend yield.
It is important to note that any of the above can result in loss at any time, but with a regular and diversified investment plan, the potential for long-term passive income is high.