How much should a 30-year-old put in a Stocks & Shares ISA to earn £2k of monthly passive income by retirement
Many of us dream of enjoying a comfortable retirement funded by passive income. But how much would a 30-year-old need to invest in a Stocks and Shares ISA to generate £2,000 per month — or £24,000 per year — by the time they retire at 65?
OK, 65 isn’t the official retirement age, but investing carefully could mean someone being able to retire earlier than otherwise. Let’s break down the numbers.
How much is enough?
To reliably withdraw £24,000 a year in retirement, many financial experts recommend using the 4% rule. This rule suggests that investors can sustainably withdraw 4% of their investment pot each year without running out of money. That means an individual would need a nest egg of £600,000 at age 65.
What does it take to get there?
The next question: how much does someone need to invest each month to reach that goal? Stocks and Shares ISAs have delivered an average annual return of around 9.6% over the last decade. Of course, the market can be volatile, but this figure provides a reasonable planning benchmark.
If a 30-year-old consistently invests for 35 years, the maths suggests they’d need to contribute about £175 per month to reach a £600,000 target. That’s assuming those average returns compound over time and that they’re starting with nothing. That’s less than many might expect. It highlights the power of starting early and letting compounding do the heavy lifting.
Markets don’t move in straight lines though. Some years will be better than others, and fees or inflation can eat into returns. Investors would be wise to review their portfolio regularly and adjust contributions if and when circumstances change.
Investing for beginners
Many new investors are often advised to start with index trackers or diversified funds, which offer broad market exposure at low cost. However, those seeking something different may want to consider an investment trust like Scottish Mortgage Investment Trust (LSE:SMT).
Scottish Mortgage stands out for its focus on high-growth, innovative companies around the world, including both public and private firms that are otherwise hard to access for most investors. Over the past decade, it has delivered impressive long-term returns, significantly outpacing the FTSE 100 and many global peers.
Its portfolio includes household names like Nvidia, Amazon, and Meta, as well as private giants such as SpaceX. This company’s great track record of picking the next ‘big winner’ and high-conviction approach offers investors the chance to benefit from disruptive trends and rapid growth stories. This means the managers focus on a relatively small number of companies they believe have the highest potential for outperformance.
However, this strategy comes with higher risk. The trust’s tech-heavy portfolio means it’s more volatile than the average tracker fund, and it can underperform in periods when growth stocks fall out of favour or interest rates rise. For example, Scottish Mortgage delivered a 99% return in 2021, but then suffered steep losses as the tech sector was hit by inflation and market uncertainty.
For beginners, Scottish Mortgage may be an interesting proposition, offering the potential for strong long-term growth but demands a willingness to accept short-term volatility and sector-specific risks. As always, diversification and understanding your own risk tolerance are key. Personally, I continue to add more of this stock to my portfolio, investing throughout the volatility.
The post How much should a 30-year-old put in a Stocks & Shares ISA to earn £2k of monthly passive income by retirement appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. James Fox has positions in Nvidia and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Amazon, Meta Platforms, and Nvidia. 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.
