£10 a day invested in cheap LSE shares could unlock a second income of £27,125 a year!
Allocating as little as £10 a day to shares listed on the London Stock Exchange (LSE) could be all that stands between an investor and a £27,125 passive income. That’s because, given enough time, compounding can turn seemingly modest sums of capital into a substantial portfolio.
Sounds too good to be true? Let me demonstrate how.
Reaching £27k+ a year
Investing £10 every day isn’t necessarily a good idea. That’s because brokers charge fees on each transaction. So to minimise the amount of money lost to trading costs, investors should put their £10 daily top-up into a savings account. Then, once a promising opportunity emerges and a decent lump sum has accumulated, they can put their money to work.
Putting £10 aside for 30 days gives investors a £300 lump sum. And that can go a long way in the stock market, so long as investors stay consistent and invest in quality businesses. To demonstrate, earning a slightly above-average market annual return of 10% is enough to build a £678,146 portfolio with £300 a month after 30 years. And when following the 4% withdrawal rule, it’s enough to generate a passive income of £27,125 a year.
Risk versus reward
Historically, UK shares have generated an average annual return of around 8%. But by adopting a stock-picking strategy, earning that extra 2% is more than doable. And if executed well, investors could potentially earn considerably more. Of course, this is dependent on picking good stocks, which is far easier said than done.
Even among FTSE 100 shares – the largest businesses on the LSE – there are no guarantees of positive returns. And there are plenty of examples of leading British businesses crumbling under their own weight. Case in point, look at what happened to Burberry (LSE:BRBY).
The luxury fashion house has been a solid long-term performer until recently, where strategy missteps combined with shrinking luxury demand in markets like China caused profits to nose dive. Dividends were suspended, jobs were lost, and to rub salt into the wound, Burberry was kicked out of the FTSE 100 after its share price fell by over 70%.
The point is, when investing in individual stocks, even the largest companies can prove to be risky. That’s why investors need to carefully examine each opportunity for both the risks and rewards.
A possible rebound?
Investing in turnaround stories can be quite lucrative if they’re successful, and can even lead investors to earn market-beating returns. In the case of Burberry, management’s made some encouraging steps in getting back on track.
Its product portfolio has hit reset with brand campaigns like ‘Wrapped in Burberry’ and ‘It’s Always Burberry Weather’, which seem to have resonated well with its core customer base.
At the same time, an operational overhaul has already begun delivering chunky annual savings, with the group expecting to cut £100m of costs by 2027. And while sales growth in the second half of its 2025 fiscal year (ending in March) was still in the red, it was still an improvement versus the first half that led to a welcome bump in free cash flow generation.
With that in mind, investors looking to kick-start their journey to a five-figure passive income may want to take a closer look at Burberry, I think.
The post £10 a day invested in cheap LSE shares could unlock a second income of £27,125 a year! appeared first on The Motley Fool UK.
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More reading
- Up 81% from its 1-year low, has Burberry’s share price rebound left it seriously overvalued?
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc. 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.
