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I love the idea of making money without having to lift a finger. But then who doesn't? There are many ways to generate passive income, but my favorite is to invest in UK blue chip stocks.
£20,000 is a good amount of money to start with. It is a sum that many will be looking to implement in a stocks and Shares ISA this tax year.
This is what I would do if I had this kind of sum to invest.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice.
Diversification
My priority would be to build a diversified portfolio of growth and dividend stocks. This way you could target an attractive combination of capital gains (as share prices rise) along with dividend income.
In terms of diversification, I would look to spread my investment across a wide range of sectors and geographies. This way I can reduce risk and capitalize on growth opportunities as they arise.
I would also like to fill my portfolio with different types of financial instruments. As an example, I recently bought shares of Ashtead Group and Legal and general; invested in the HSBC S&P 500 UCITS ETF Investment fund; and opened a position in the Balanced VT AJ Hood managed fund.
<h2 class="wp-block-heading" id="h-a-top-ai-stock”>A superior ai action
So what type of investment would you start this new fiscal year with? one higher FTSE 100 share what I am considering for my ISA is microsoft (LSE:MSFT).
I already have exposure to the company through the S&P 500 tracking fund I mentioned. About 7.2% of the fund is tilted towards the American software giant.
But I'm also thinking about buying Microsoft stock to increase my exposure to the rise of artificial intelligence (ai). The same as NVIDIASales are taking off as individuals and companies look to harness the power of machine learning.
Hargreaves Lansdown Analysts have commented that Microsoft “is the first when it comes to the potential monetization of ai“. This was evident in the company's latest financial statements, which showed that revenue increased 18% in the December quarter, to $62 billion.
On the downside, Microsoft's costs are expected to skyrocket as it invests heavily in ai. But this is a risk I would be happy to take given the pace at which the market is growing.
The road to a million.
By adding a combination of different investments like this, I could expect to increase my wealth by an average of 9% annually over the long term. While not guaranteed, this is the average that UK stocks have been delivering for decades.
In this example, that £20,000 investment compounded over 30 years (excluding fees and taxes) would become £294,612.
It's a great return, I'm sure you'll agree. However, if I could invest a little more each month, I could really boost my wealth.
With a monthly investment of £500, I would have £1,209,983 in my account, giving me a place in the millionaires' queue. That's based on the same 9% return over 30 years.
From this super sum, I could rotate my portfolio towards dividend stocks with an average yield of 5%. This could give me a potential second income of £60,499.
