How I’d invest £500 per month to build a passive income

first_imgHow I’d invest £500 per month to build a passive income Our 6 ‘Best Buys Now’ Shares Image source: Getty Images. Simply click below to discover how you can take advantage of this. Enter Your Email Address Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! “This Stock Could Be Like Buying Amazon in 1997” Roland Head | Saturday, 11th January, 2020 center_img Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. If you’ve decided to start investing in 2020, then congratulations!In this age of low interest rates, I believe that the stock market provides one of the few opportunities available for small investors to build a worthwhile passive income.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Save with an ISAThe first step I’d urge you to take is to open a Stocks and Shares ISA. Like Cash ISAs, these accounts are tax-free. So any income or capital gains you generate through investing will never be taxed. Over the years, this can lead to some big savings.Lots of brokers offer Stocks and Shares ISAs. But for good value and reliable service, I think the easiest option is to choose one of the big names. These tend to have modern, reliable websites and decent customer service. Hargreaves Lansdown, AJ Bell, and Interactive Investor are all popular choices.The easiest way to get startedThe easiest way to put your cash to work is to start paying into a low-cost FTSE 100 index fund each month. The FTSE 100 offers a dividend yield of 4.3% at the moment, so you’ll benefit from a decent income and the potential for capital gains.If you’d like to build a passive income, you’ll need to make one important decision at this point. Do you want to start withdrawing income today, or are you investing for the future?If you want income from your investments immediately, then you’ll need to buy distribution or income units when putting cash into a fund. This means your dividends will be paid out to you in cash, probably every six months.If your aim is to build a fund to provide you with an income in the future – perhaps when you retire – then you’ll probably want to buy accumulation units. Doing this means your dividends will be automatically reinvested in the fund, boosting your returns and allowing you to benefit from the wonders of compounding.Do you want to buy stocks directly?I think that index funds are a great way to invest. But as a stock investor myself I understand the attraction of owning shares directly.If you’d like to start investing in stocks with £500 per month, my suggestion would be that you plan to make a purchase every second month. That way, you’ll keep your dealing costs down to around 1% of the amount invested, based on a typical £10 dealing charge.Since we’re focusing on passive income, my next suggestion is that you should focus on high-yield dividend stocks from the FTSE 100 and FTSE 250.Given that the FTSE 100 offers a yield of 4.3%, I think we need to aim for a yield of at least 5% to make it worth investing in individual stocks.To pick your stocks, you’ll need to get hold of some market data. As a minimum, you’ll need a list of the stocks in the FTSE 100 and FTSE 250, including forecast earnings and dividend yields.I’d aim to pick 10 to 20 stocks from different sectors, adding one to your portfolio every two months.By the end of the second year, you should have a portfolio generating an income of at least 5% – around £600 per year. Reinvesting this income, if it’s not needed, will enable you to speed up your purchases and enjoy larger payouts in the future. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. See all posts by Roland Headlast_img read more