Do passive investments really exist?

Image source: Getty Images.

I started investing in the stock market in the early 2010s and had to make a decision about what type of investor I was going to be. Did I want to invest for growth or for income? Every investor is different, and for me, I chose not to buy dividend-paying stocks entirely for passive investing.

At that time, before 30, I felt that I had time on my side to spend time in the market. (And hopefully my money will be put to good use through growth stocks.) I was only able to invest small amounts of money at first – I still am, in fact! But I followed a strategy of regularly investing no more than £1000 when I had saved up and felt able to ‘lock in’ that money which I probably wouldn’t need in the next three to five years.

Looking back nearly a decade later, I wonder what might have happened if I had invested solely in income stocks, with the end goal of passive income? Sure, it’s still the dream – but dreams aren’t exactly known to be based on reality!

The stream FTSE 100 return is 2.91% at the time of writing. Estimate that I was able to save £500 per month, buying shares as passive investments every two months.

In this hypothetical scenario, “after me” could have invested £6,000 per year. If the average yield on these stocks was 2.91%, that’s £174.50 in dividends in a year.

Following this same strategy, in year two my dividends would have been just under £350 in total.

Over a 10 year period I would see £1,746 returned via dividends per year.

Over 40 years, that figure would be just under £7,000, or the equivalent of less than £590 a month.

As I said at the top of this article, every investor’s situation is different. If someone was able to accumulate a lot more income stocks per month or per year, then yes, they would get a higher passive return on investment through dividends.

But in my opinion, it would take me several decades to achieve a decent passive income. And I probably would have missed some great growth opportunities along the way.

Was this article helpful?


Some of the offers on The Motley Fool UK site come from our partners – that’s how we make money and keep this site running. But does this have an impact on our grades? No. Our commitment is for you. If a product is not good, our rating will reflect it or we will not list it at all. Also, while we aim to present the best products available, we do not review every product on the market. Learn more here. The statements above are those of The Motley Fool and have not been provided or endorsed by the banking advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. The Motley Fool UK recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard and Tesco.

Comments are closed.