Stock market

£10K invested in UK stocks could earn me a second income of £8,295 a year!

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I often think about my retirement and how I will fund my lifestyle. I think investing in quality UK stocks now can help.

I explain how following a carefully formulated plan can help.

Rules of the game

Let’s say for the purposes of this article I have £10K to invest right now. I would put it all into a stocks and shares ISA. Buying dividend shares within this vehicle means I don’t have to pay a penny in taxes on the dividends earned! In addition, I get an annual allowance of £20K if I am able to invest more in the future.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any tax advice. Readers are responsible for doing their own due diligence and seeking professional advice before making any investment decision.

In addition to my £10K, I’m going to invest another £100 every month.

I want to buy stocks that offer me good rate of return, good track record as well as positive future prospects.

Putting in the maths, an initial £10K investment plus £100 per month for 25 years, with a target rate of 7%, would leave me with £138,261.

Next, I’m going to put down 6% a year, which equates to £8,295. That’s a tidy sum, if you ask me, especially since I won’t be supporting my kids anymore, and my mortgage will be paid off.

This all sounds good in theory, but I would be remiss not to mention the potential pitfalls. First, profits are never guaranteed. Second, all stocks come with risks that can deter my investment pot. Finally, I can’t get a 7% rate of return.

On the other hand, my stocks may yield more, which means I’ll have more money left over!

A stock I will buy to help me achieve my goal.

British American Tobacco (LSE: BATS) could be a great stock to help me build my second income stream, in my view.

The tobacco giant has been around for a long time with immense brand power, wide reach, and a stellar reputation for investor rewards.

British American Tobacco shares are currently at 2,397p, down 6% from 2,554p this time last year.

Tobacco stocks have fallen out of favor with many investors in recent years. It is related to the harmful effects of smoking on health. Also, anti-smoking sentiment is higher than ever, with world governments getting more actively involved. This could mean that regulations could change, and British American Tobacco’s performance and profitability could be affected.

Despite the aforementioned problem, British American Tobacco – and its tobacco counterparts – still make cash hand over fist. Part of this is due to the rise in popularity of non-tobacco alternatives such as vapes and offsetting weak sales of traditional tobacco products.

Also, I think it could take decades to completely ban smoking, or introduce laws that could affect sales to the point where tobacco firms can’t reward investors. are In my opinion, investors like me still have a lot of time to reap profits.

Finally, a dividend yield of around 10% is huge, and will go a long way to growing my pot for my purposes of an additional income stream.

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