A 7 -step plan to try to build a monthly passive income of £ 700

Passive income plans come in all forms and sizes. One that uses is to regularly put money in the stock market and build a portfolio of shares that pay dividends.

This is how anyone could use such a plan, as of today, to aim at a monthly passive income of dividends of £ 700 of dividends.

Step 1: Configure a shared treatment account

When the time comes to buy shares, a treatment account of some kind will be necessary. Therefore, the first step would be to analyze the different accounts for the treatment of shares and Isa actions that are available in the market and choose an adequate.

Step 2: Configure a regular contribution

£ 700 a month amounts to £ 8,400 a year. In a portfolio with a dividend yield of 7% (which means that it pays £ 7 in dividends annually for each inverted £ 100), that would require investing £ 120k.

In this example, I suppose someone starts with anything and makes regular monthly contributions. Illustrate with £ 400, but each investor could adjust the amount to what was personally convenient (although that can mean that they reach the goal sooner or later).

Step 3: Learn about the stock market

Is 7% a typical yield? No. It is close to twice the current Ftse 100 average.

But I have some ftse actions like Legal and general (LSE: LGEN) that offer such performance, or higher. Legal & General produces 8.5% and has announced plans to increase its dividend by action annually in the coming years.

However, dividends are never guaranteed. Legal & General reduced its payment during the financial crisis of 2008. In addition, even a high performance action can fall into the price over time, which could make an investment in losses.

So, before starting, an investor should learn the basic concepts of how to be a good investor and face concepts such as the assessment of the actions.

Step 4: Starting to buy shares

Another principle of this type is to spread the risk by diversifying the portfolio in different actions. That is a good practice from day one.

Like Warren Buffett, my approach to find actions to buy is to stick to what I understand and look for excellent businesses that are sold at attractive actions prices. If nothing seems attractive today, there is never a hurry to buy.

With passive income in mind, it is important not only to focus on performance. It also matters if the dividend seems sustainable. Legal & General has many competitors. The profits in recent years have been weaker than before and the planned sale of a business in the United States could reduce them even more.

But it has strengths, as a proven business model, a large customer base a known brand.

Step 5: Refiring the dividends

Instead of immediately obtaining passive income, an investor could initially reinvest the dividends to build more capital. This is known as compound.

Step 6: Obtain income

Increasing £ 400 per month to 7% per year, the portfolio must be worth more than £ 124K after 15 years. With a yield of 7%, that will show more than £ 700 in monthly passive income on average.

Step 7: stay the course

As of today it is easy. But to achieve the objective, an investor must continue with the plan over time. That also implies monitoring the portfolio in case the investment case for any of the changes of shares on the road.