Here is how to build £ 100k of five a day and win £ 10 per day in passive income

Building savings considerable enough to obtain a passive income is not a walk through the park, but it is definitely available. With the correct combination of dedication, patience and selections of smart actions, it can become a reality.

For investors with some spare cash to save, there are many ways to put it to work. A low effort approach (but in the long term) is to invest in companies that pay dividends.

It is not a safe strategy, but many renowned investors have used it successfully over the years. To increase the chances of success, certain key steps can make a difference.

Reduce costs and maximize profits

Investment profits are often subject to tax, so reducing these costs is a first intelligent movement. For the investors of the United Kingdom, Isa's actions and shares offer a fiscal efficiency solution.

With an annual allocation of £ 20,000, this account allows investments in several assets with an exemption of income taxes. There are many options to open one, either through a street bank or a variety of financial suppliers.

Keep in mind that tax treatment depends on the individual circumstances of each client and may be subject to changes in the future. The content in this article is provided only for information purposes. It is not intended to be, it does not constitute any form of fiscal advice. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making investment decisions.

Consider diversifying

To safeguard a portfolio against individual failure points, many investors adopt a diversified approach. This implies selecting a combination of assets of various industries and regions to reduce the impact of any unique loss.

For example, growth actions offer greater potential yields, while dividends provide a stable income flow. Meanwhile, defensive actions tend to maintain their value when other assets are blocking.

Each one contributes their own benefits to the table.

<h2 class="wp-block-heading" id="h-passive-income-stocks“>Passive income actions

My passive income portfolio includes some defensive actions such as Tesco, GSK, and Uneilever. I also have some well -established dividend actions such as Legal and general, Aviva, and National grid.

However, when it comes to maximum yields, my most important dividend stock has long been American British tobacco (LSE: bats). With a yield of 7.8%, the tobacco giant has a long history of consistent dividend growth.

Unfortunately, tobacco is a problematic industry with an uncertain future. The devastating health effects of smoking attract increasingly strict regulations.

That is part of the reason why the price of the action has dropped 43% since its maximum in 2017.

Even so, I think the company's pivot to less harmful products will succeed. The change is already demonstrating to be beneficial, with the actions up 32% in the last year.

There is a risk that the transition may not be profitable, or be regulated outside the business. But for now, I like their probabilities and I believe that less harmful products will ultimately benefit tobacco addicts.

Calculating returns

If an investor save £ 5 per day for 10 years, that would amount to £ 18,250. But if they put it in a portfolio with an average yield of 7% and a price growth of 3%, it could grow to £ 33,524 (with reinvested dividends).

The dividends in that would amount to £ 1,700 per year, or £ 4.65 per day, almost the same as the contributions.

Another 10 years and would have grown at £ 97,426, paying dividends of £ 3,721, more than £ 10 per day!

This example shows how an investment could go from costing £ 5 a day to pay £ 10 per day. In addition, the investor would have almost £ 100,000 in savings.