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A second income can be a useful supplement to an investor's profits. As the weeks leading up to Christmas often remind us, life can be an expensive affair.
But taking a part-time job is just one way to earn a second income. Another, which involves less work (in fact, basically none), is to buy stocks that can hopefully pay a series of dividends in the future.
In my opinion, that approach has several attractive factors. One is that it allows me to benefit from the success of proven, profitable businesses like Legal and general and JD Sports. Another is that I can do it in a way that fits my own financial circumstances.
In fact, even if you had a few pounds a day to spare, you could launch a second income plan in 2024. As an example, here's what you would do with £3.80 a day (the cost of a sandwich) . ).
Save to invest
I would start by setting up a shares trading account or stocks and Shares ISA. There are many different options available, so I would consider the options carefully and choose the one that seems to best suit my own needs and circumstances.
I would then get into the habit of saving £3.80 a day. This could be physically hoarding some loose change each day or setting up a direct debit, for example.
It may not seem like much, but in a year, saving that amount each day would give me £1,387 to invest.
Building Passive Income Streams
How much I could earn from that depends on the average dividend yield of the stocks I buy. The yield is basically the annual dividend per share expressed as a percentage of the price paid for it.
Let's say I achieved an 8% return, for example. Investing £1,387 at that return should give me a second annual income of £110.
But remember, that's using only a year's worth of daily savings. In the second year, you would continue to save but hopefully still earn dividends from the previous year's investment. So on, and the second income is expected to grow.
You could speed up that process by reinvesting the dividends instead of withdrawing them in cash at the beginning. This is known as capitalization.
Find stocks to buy
I think an average return of 8% is realistic. Legal & General yields 7.9%, for example, quite a few FTSE 100 stocks are higher. I say average because I would diversify my portfolio across several stocks.
Still, 8% is about double the FTSE 100 average. JD Sports yields less than 1%, for example.
Buying stocks simply because they have a high yield could be something I later regret. Dividends are never guaranteed. Direct line It started 2023 with a double-digit return, for example, and is now down to zero.
Therefore, I would focus on finding brilliant companies with share prices that I find attractive. Once I find them, I might decide if they might be a good fit for my second income goals.
