Do passive investments really exist?
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.
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