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One of my long-term goals is to generate sustainable passive income. However, times are tough right now.
The cost of living has increased significantly in recent years, while high interest rates and a sluggish economy certainly aren't helping. I thought I'd start by setting a goal of setting aside £50 each week to invest.
It doesn't sound like much, but I really think that with some smart investments you could turn that into £10,000 a year.
Invest £50 every week
I wanted to choose a FTSE 100 actions that caught my attention. There was one banking giant in particular that I liked the look of from a valuation and performance perspective.
HSBC (LSE:HSBA) shares are up 8.6% in 2024 and are at 685p each. A few sustained years of profits have given HSBC a sizeable market capitalization of £124bn, the largest of any bank in Footsie.
I also like the stock from a valuation perspective. The current forward price-to-earnings (P/E) ratio of 7.2 and a dividend yield of 7.1% are nothing to sneeze at.
It was that dividend in particular that caught my attention during my research phase. If I could start today and invest £50 each week, what kind of passive income could HSBC shares generate for me in the future?
Building a passive income
Assuming you invested £50 each week and received and reinvested semi-annual dividends, the figures add up quite quickly.
After a year, that portfolio would be worth around £2,700 with minimal dividends. However, by the end of the decade, I could have a £38,000 portfolio and pay myself around £2,479.
According to my figures, it would take me around 24 years to build a portfolio worth £161,772, paying me £10,709 a year in passive income. Of course, this assumes there will be no capital growth or losses from fluctuations in the HSBC share price.
HSBC in the long term
The bank recently announced a restructuring plan with the aim of splitting the business into East and West, as well as combining its commercial and investment banking arms.
Management seeks to address rising geopolitical tensions to preserve current relationships in each region, reduce costs and drive greater growth.
This could be good news for shareholders in terms of value creation and profitability, but there are potential operational and reputational complexities that could hurt the bank in the long term.
Building my portfolio
I think the changes make sense but execution will be key. Despite the strong performance on offer, I think my best approach will be to build a balanced portfolio of Footsie shares for the future.
If I can kick-start my savings goals and save my £50 each week, I think HSBC could be part of that group to achieve my passive income goals for the future.
