£5k in savings? Here is how an investor might target a £354 monthly passive income

The stock market is a capricious beast. It jumps up and down hundreds of times a year and no one has much of an idea how things will play out. For example, the Trump tariffs kicked in this week. A market crash? Not at all. The opposite, in fact. Most indexes are up. But despite its unpredictable nature, there isn’t really any other investment with such a proven track record of taking a pool of savings and building it into an amount that can spit back a lifelong passive income.

Simple answer?

An investor wanting to get started might worry about such things. Is this stock the right one? What about that one? Or this other one everyone’s talking about?

There is a simple answer to all such questions — no one knows. Not until after the fact, anyway.

But one way to try to smooth out those erratic ups and downs is to diversify, investing in different sectors and different companies. A simple way to do this is with investment funds, where experienced money managers pick the stocks for you – for a fee of course.

One that I invest in and also think is worth considering for any investor looking for a passive income is Scottish Mortgage Investment Trust (LSE: SMT). For one, the fees are low. Just 0.35% a year.

The fund covers 30 companies at present which means one or two bad eggs will get smoothed out through all that diversification.

Supermassive

But where it shines is its focus on growth. The fund seeks out exciting growth companies, often in the technology sector, which offers the chance of supermassive asymmetrical returns.

Past winners include Tesla or Nvidia – bought well before the hype. Scottish Mortgage can boast of a 20 times return this century thanks to investments like that. Not many other stocks on the FTSE 100 can say that.

There are risks to any stock, and with Scottish Mortgage it’s easy to get blinded by technology’s recent overperformance. Big tech isn’t guaranteed to beat the rest of the market, even if some seem to think it is.

And because valuations look frothy, some of the funds’ constituents have a long way to fall. That’s one reason why an investor might be better served supplementing this with other investments.

Imagine an investor with £5,000 to spare. The money goes into Scottish Mortgage to support other shrewd investments. As this cash is aimed at hitting those big numbers, a 12% yearly return could snowball into £85,000 after a 25-year investing period.

Rebalancing into dividends aimed at 5% leads to £354 a month, all from that initial stake.

No guarantees here, of course. But as part of a broad investing strategy, I think this is one an investor might want to consider.

The post £5k in savings? Here is how an investor might target a £354 monthly passive income appeared first on The Motley Fool UK.

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John Fieldsend has positions in Scottish Mortgage Investment Trust Plc and Tesla. The Motley Fool UK has recommended Nvidia and Tesla. 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.