Here’s how a 1-year-old could enjoy a £50,000 second income at 32 years old

Ok, I’m going to use the example of my one-year-old. She has a Junior Stocks & Shares ISA, which we opened at her birth, and it’s going well. She currently has around £16,000 in there — not enough for a second income — which has built up over the last 20 months or so, driven in part by US-tech exposure.

So, how does this all work? Well, my family elects to put £500 a month into her ISA, and this is typically invested in one or two stocks a month. As the above suggests, we’ve done a little better than the standard 10%, however, that’s my aim over the long run.

If this process were kept up for 30 years, and assuming 10% annualised returns over the period, well, the portfolio would reach £1.18m before her 32nd birthday. That’s enough to generate a second income worth around £50,000. That’s assuming a yield below 5%.

Starting from scratch

Starting from scratch, anyone could achieve something similar for their children, even with more modest assumptions. Historically, global stock markets have averaged around 8% per year, which makes a useful baseline.

With consistent monthly contributions and the power of compounding, relatively small sums can grow into life-changing amounts over time. For instance, investing £250 a month at 8% annualised returns would build a pot of around £370,000 after 30 years. Double that to £500 a month, and the total could exceed £740,000.

Crucially, the earlier the account is opened, the more compounding works in the investor’s favour — gains begin to generate their own gains, snowballing over decades.

What’s more, parents don’t need to be stock-pickers to achieve this, either — a low-cost global tracker fund would likely suffice. The key is discipline and time.

Investing to beat the market

Of course, investors may want to try and beat the market for their little ones. This could mean investing in one or two stocks a month in an effort to outperform indexes like the FTSE 100.

Jet2 (LSE:JET2) is, in my view, a company well worth considering for investors seeking value in the travel sector. Analysts are bullish, and a core reason is its exceptionally strong balance sheet. The airline holds net cash of around £2.2bn. This figure, which includes customers’ deposits, is expected to rise close to £2.5bn by 2027.

And despite the addition of customer deposits to that figure, it still leaves Jet2 trading on unusually low cash-adjusted valuations. For 2025, the EV-to-EBITDA ratio is around 0.9, that’s far beneath sector norms.

Added to this, Jet2 is refreshing its fleet without excessive borrowing, enjoying the support of lower fuel prices, and benefitting from strong brand positioning. However, investors should certainly be wary of the impact of higher national insurance contributions and wages. These are already pushing costs upwards.

Nonetheless, I certainly believe it’s well worth considering, especially when we consider that analysts believe it’s undervalued by around 34%.

The post Here’s how a 1-year-old could enjoy a £50,000 second income at 32 years old appeared first on The Motley Fool UK.

More reading

• Here’s how 10% of your salary could become a £1m ISA
• What’s going on with the Jet2 share price now?
• Will I see Jet2 shares on the FTSE 100 any time soon?
• Here’s how to start investing in September to aim for £20,000 in passive income
• Here’s how to target a £20,000 annual second income, starting from zero

James Fox has positions in Jet2 plc. 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.

See author's posts