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So the UK stock market is falling again. It could steer long-term passive income seekers away from stocks. But I think that would be a mistake, and I want to explain why.
At times like this, a Cash ISA might seem like a better bet. Some offer around 4% interest right now, at least for one-year fixed terms. That is guaranteed and safe.
But returns like that can’t last when Bank of England interest rates come down again.
FTSE falling
He FTSE 100 is falling, and investors lost money last week. If we have another accident, we could be wiped out, right? And that wouldn’t give us much cash when we retire.
But it’s all about time scales and diversification. If we do it right, I think we will greatly minimize the risk of downside. And we will increase our chances of generating solid passive income.
ISA millionaires
Investing in ISA shares and shares has so far produced over 2000 millionaires in the UK. And I’ll tell you what I think most of them are doing now that the Footsie is sinking.
I think right now they are buying as many new shares as they can.
What actions do ISA millionaires go for? That’s easy to answer.
According to ISA’s suppliers, they are buying shares in fan, National Network, Shell, GSK… The main share buys are in FTSE 100 stocks with a track record of growth and dividends.
Main returns of the ISA
OK, so I’m not a millionaire. Most of us are not. But we could still benefit from the returns from Stocks and Shares ISA. In the last 10 years, the average return was 9.6%.
Anyone with £10,000 could pocket £960 a year in passive income at that rate. And if we can create a £50,000 investment fund, we could withdraw £4,800 a year.
Now, I don’t expect to get that rate every year. The arrival of Covid resulted in a loss of 13% in the year 2019-20. And that could well happen again. In fact, some years of losses are almost certain.
realistic goal
But I think a target of around 7% could be achieved. And it is largely in line with the long-term average of the UK stock market.
That means £50,000 worth of Shares and ISA Shares could generate £3,500 per year. I sure would like to receive that to supplement my pension when I retire.
And right now, I see some high-income stocks getting cheap. the forecast M&G the yield is up to 8.5%. Barratt developments is at a yield of 8%. and in red riverwe are looking at a return of 7.1%.
cheap stocks
All FTSE 100 top returns are slightly better now that share prices are falling.
Buying the stocks I mention here would also put us on the path to a diversified selection. That way, if any sector goes down, we would have some protection.
In the short term, dividends could fall. But I think it’s the best way to passive income. Buy FTSE 100 shares from a variety of sectors and hold them for the long term.
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