Stock market

Here’s how I’d target £20k a year other income from a £20k Stocks and Shares ISA

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Earning a second income doesn’t mean working long hours. In fact, I find an easy way to get second income is to use a Stocks and Shares ISA to buy dividend shares.

Of course, sometimes it can work better than others. Profits are never guaranteed.

So I’ll spread my ISA across a few different companies and pay close attention to making sure I’m buying what I think are solid businesses with attractive share prices and profit potential.

And if the approach works, it lets me earn a decent amount of money every year without having to work for it. For example, here’s how I can target £2,000 in annual returns from a £20k Stocks and Shares iSA.

getting started

My first step would be to choose a Stocks and Shares ISA that I felt suited my needs. I will then put my £20k into it.

To find stocks to buy, I’ll stick to industries I understand. My preference would be for blue chip companies with proven business models.

However, as past performance is not necessarily indicative of what to expect in the future, I will not dwell too much on the dividend history of firms. Rather, I will look at their profits. Possibilities.

It is worth adding that value will also come into the equation. After all, even if I make juicy profits along the way, I can still lose money if a share’s price falls significantly while I own it.

A dividend share I would buy.

To illustrate the type of shares I’ll be looking for, here’s what I’ll use for my Stocks and Shares ISA when I have extra cash to invest: Legal and General (LSE: LGEN).

The company operates in the financial services sector. I expect to benefit from strong long-term demand. As an investor, I like this sector because the large sums involved mean that commissions can add up quickly, while the effort to switch providers means that many customers rarely They move.

Legal and General has some advantages that help it perform well. The brand is well-known, has a large customer base and, over the past few years, has focused more on retirement planning and related products, giving it greater credibility in the sector.

If markets fall and policyholders start withdrawing funds, this can hurt profits and cut dividends. As a long-term investor though, legal and general is like that. FTSE 100 Firm I would be happy to hold my stocks and shares in an ISA.

£2k a year in passive income

The dividend yield on the firm is 8.2%. At the moment, I believe I can build an ISA with an average yield of 8%. That’s double the FTSE 100 average, but firms like Legal and General are ones I’d be comfortable investing in.

Investing £20k at an 8% yield would give me a £1,600 profit a year.

If I compounded (reinvested) these profits for just three years, my stocks and shares ISA should throw away over £2k in dividends a year.

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