How to invest £10 a day and aim for passive income paradise
I’d love to work less and have more passive income, but I’ve not reached the level of wealth accumulation needed to do so. However, with my portfolio growing by over 50% this year, I’m well on the way to achieving the desired financial freedom.
So, just how can it be done? Well, anyone starting investing today with very little money, needs to commit to a sustainable and consistent long-term strategy. This is what I do.
Consistency and compounding
Consistency and compounding are the twin engines that can drive small, regular investments into substantial wealth over time. By faithfully investing £10 daily, I’m not just saving money; I’m harnessing the power of habit and mathematical growth.
Ok, practically, how is this done?
Well, with any major brokerage I can set up a regular savings subscription. This might not be £10 daily, but maybe £70 a week or £300 a month. Personally, I invest a little more than this, but it all depends on what’s affordable and sustainable.
However, this consistency — be it daily, weekly, or monthly — ensures a steady accumulation of capital, regardless of market fluctuations. It removes emotional decision-making and takes advantage of pound-cost averaging, potentially lowering my average purchase price over time.
And then there is compounding, often called the eighth wonder of the world. This is where the magic happens. As my investments generate returns, those returns are reinvested, creating a snowball effect. Over decades, this can transform modest contributions into a significant nest egg, potentially providing a robust passive income stream in the future.
Here’s how it looks
Here’s what £300 invested every a month looks like with 5%, 10%, and 15% investment growth. The chart shows the size of the portfolio after 5, 15, and 25 years, as well as the passive income that could be achieved, assuming an average dividend yield of 6%.
| 5% | 10% | 15% | |
| Portfolio size after 5 years | £20,401.82 | £23,231.12 | £26,572.35 |
| Passive income after 5 years | £1,224 | £1,393 | £1,594 |
| Portfolio size after 15 years | £80,186.68 | £124,341.10 | £200,552.03 |
| Passive income after 15 years | £4,811 | £7,460 | £12,033 |
| Portfolio size after 25 years | £178,652.91 | £398,050.02 | £973,058.88 |
| Passive income after 25 years | £10,719 | £23,883 | £58,383 |
Where to start investing
So, where should we start investing? Well, in order to start building a portfolio, I think investors should consider growth-oriented stocks.
One growth-oriented company I’ve recently bought more of is Celestica (NYSE:CLS). My first investment in the stock is up around 250%, indicating that the shares have great momentum. This suggests we may not have to wait long for our desired returns.
Complementing this momentum is an excellent valuation, highlighted by a price-to-earnings growth (PEG) ratio of 0.86, and consistent positive earnings revisions — analysts keep improving their expectations for this company.
Any concerns? Well, two-thirds of Celestica’s sales come from just 10 customers, so there is some concentration risk here. Moreover, gross margins are below the sector average, which is both a concern and an opportunity for improvement.
Nonetheless, Celestica is my multibagger pick. With supportive trends in artificial intelligence aiding demand for its tech solutions and creating new operating efficiencies within the company, it looks like a real winner to drive my portfolio higher.
The post How to invest £10 a day and aim for passive income paradise appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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James Fox has positions in Celestica Inc. The Motley Fool UK has no position in any of the shares mentioned. 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.
