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You’ll be happy with $200,000 to start investing today. It’s easy to strive for a virtually tax-free second income.
If I had this amount, this is what I would do.
A world full of choices
My first action is to start a Stocks and Shares ISA. Doing so not only protects my tax benefits, but also opens up investment opportunities to grow my wealth over the long term.
You could buy UK dividend stocks like HSBC or growth stocks like Amazon.
I mention HSBC because, despite being a shareholder, I have never done any banking with a FTSE 100 company. However, I recently came across a decent introductory offer for new customers that might make you jump ship from the bank.
E-commerce giant Amazon, on the other hand, needs no introduction. It is on track to reach $1 trillion in revenue (that’s a 1 followed by 12 zeros!) within the next 10 years.
Hardly a day goes by that I don’t order something from Amazon. But strangely, even though I have been a long-time customer, I have never owned any stock.
This stock is up about 1,100% in 10 years, so this is a stupid omission from my portfolio.
Please note that tax treatment varies depending on each customer’s individual circumstances and may change in the future. The content of this article is for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Consider FTSE 100 stocks
So what investment should you start with? Well, the first one I’d like to mention is Scottish Mortgage Investment Trust (LSE:SMT).
This FTSE 100 fund has built a portfolio of exciting global growth stocks from both public and private markets. Unlike me, I wasn’t slow to invest in Amazon. In fact, the company first purchased stock back in 2005.
Investing my money in Scottish Mortgage shares gives me instant diversification across around 100 companies, including Nvidia, Spotify, Meta Platforms, the parent company of Facebook and Instagram.
Furthermore, I had a rare opportunity to interact with the private company SpaceX. The reusable rocket company continues to operate the ring around its competitors, which was valued at a record $210 billion in June.
Since then, SpaceX has facilitated the first-ever privately funded spacewalk. The next big mission is to return to the Moon and eventually Mars, making humanity an interplanetary race.
The thing to keep in mind here is that the portfolio is heavily tilted toward high-growth stocks. If the market turns bearish due to these factors, the trust’s shares are likely to suffer.
the story continues
Still, I expect the continued growth of top holdings like Amazon and SpaceX to be reflected in higher Scottish Mortgage values in the long term.
reaching 83,000 pounds
I think it is realistic to aim for an average return of 10% through a portfolio of stocks like this. This is the approximate average for stocks over the long term.
In this scenario, my £20,000 compounded over 30 years would be £348,988 (not including platform fees). That would be a great result, but no guarantees.
However, if you also add money along the way, the final result can change completely.
For example, if you invested a further £8,000 a year (equivalent to £666 per month) while generating a 10% return, you could reach £1,664,940 over the same period. can’t believe it!
That way you can focus on income stocks (making sure your portfolio is diversified since the dividends are not guaranteed). At a yield of just 5%, my portfolio would generate a secondary income of £83,247 per year.
Got £20,000 in the post? Here’s how you can turn this into a second income of £83,247 a year. Originally published on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Motley Fool’s Ascent. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Ben McPoland holds positions at HSBC Holdings and Scottish Mortgage Investment Trust Plc. The Motley Fool recommends Amazon, HSBC Holdings, Meta Platforms, and Nvidia. The views expressed on the companies mentioned in this article are those of the writer and may differ from official recommendations we make on subscription services such as Share Advisor, Hidden Winners, or Pro. At The Motley Fool, we believe that considering diverse insights makes us better investors.
The Motley Fool UK 2024
