The key to generating a healthy passive income stream, surely, is choosing the right kind of investment. And then combining that with time. So what investments do I go for? Company shares, every time.
In these low-interest days, UK investors have increasingly been moving their money from Cash ISAs to Stocks and Shares ISAs. And over decades, shares have a habit of nicely outperforming cash savings. It’s not guaranteed, of course. But history does put the odds on our side.
It’s easy to be put off the idea of shares because of the mystique and the feeling that it’s only for the wealthy. But that’s simply not true. And investing early can pay more handsomely in the long run than investing big. I reckon it’s perfectly feasible to start off with something small, like just £50 per month. That’s less than £12 per week.
Passive income plan
I transfer cash into my investing account whenever I have a bit spare. Had a cheap week and didn’t spend much? Here, ISA, have a few extra quid. And it can just sit there until I have enough for a share purchase. For me, that’s a minimum of £500, based on today’s modest account management charges.
It still takes 10 months at £50 per month to get that much together, though. And that can seem frustrating, especially to younger investors. But you know what I found after I got started?
My first investment was a big thrill. I owned shares on the stock market! Not some fancy pants city slicker. No, little ordinary me. And that was a huge motivation to try to stash away a little more.
And over the years, my thinking has changed. I started off just putting away what I had left over every month. But I soon moved to a more proactive approach: “Hmm, if I buy this, I’ll have less cash left for shares”.
Difficult decisions?
The other big off-putter for newcomers is surely the difficulty of deciding what to buy. But there are many options, and it’s really up to each investor how much effort they want to put in. Don’t want to do any work? Many people just drip their money into a FTSE 100 tracker every month, which follows the index, and forget about it.
But you know what else happened to me as my investments started to build up? I wanted to learn more. I wanted to analyse companies better, and seek potentially better passive income returns. And again, there’s no rush. We can take it step by step, and learn as we go along.
Next step
Want to go one better than an index tracker? I think a promising next step is to look for FTSE 100 companies paying good dividends. In fact, it’s my main strategy these days. And we have plenty of articles here at The Motley Fool exploring ways to go about it.
Anyway, those are just a few thoughts on developing a passive income investment plan. I’ll just reiterate that the key thing for me is time. Start small, build big, no rush.