How much do you need in the stock market to target a £3,500 monthly passive income?
The UK stock market has enjoyed a fabulous 2025, with the FTSE 100 outperforming the S&P 500 for the first time in years. Delivering a year-to-date total return of almost 23% including dividends, it’s the index’s seventh-best year since records began.
The financial, mining and healthcare sectors have done particularly well, making up around 40% of the growth. But with interest rate cuts looming, banking stocks could lose their edge and gold growth could taper off, hurting mining stocks.
So what can an investor look towards in 2026 and how much is needed to target £3,500 in passive income?
Looking ahead
Economists and market pricing currently point to the Bank of England cutting rates toward roughly 3.5% by midâ2026, with an initial cut expected this month (December) and another move in early 2026.
Some of the highestâyielding UK income names today are in life insurance and asset management, where cash generation is less directly tied to shortâterm base rate moves.
So the finance sector still commands an important part of a portfolio. But before looking at which stocks to consider, let’s crunch some numbers.
The journey to £3.5k a month
Aiming for a dividend income of £3.5k a month is a realistic goal, equating to £42,000 a year. That would require a £600,000 portfolio, working on a typical average yield of around 7%.
For investors that don’t have £600k in cash lying around, it isn’t too late to start building towards it. With a £5,000 initial investment and monthly contributions of around £500, it would take around 28 years to hit that target.
Of course, that’s no small amount a month and would require some tight budgeting — so the sooner you start, the better. With only £300 to contribute a month, it would take closer to 35 years.
Stocks to consider
To hit a 7% average yield, investors would need to aim for a mix of reliable stocks with sustainable yields between 5% and 9%. A few examples include Legal & General (9%), Admiral Group (7.6%), Primary Health Properties (7.5%), Aberdeen Group (7.5%), Investec (7%), LondonMetric Property (6.8%), TP ICAP (LSE: TCAP) (6.5%), Imperial Brands (5.9%) and OSB Group (5.7%) and Schroders (5.6%) and Rio Tinto (5%).
These aren’t just the highest-yielders but those with good payment track records, cash coverage and low debt. For instance, TP ICAP has enough cash to cover dividends 2.6 times and dividend payments only make up 70% of earnings. Its balance sheet shows debt that’s only half its equity and it has a solid return on equity (ROE) of 8.7%.
Together, these metrics reveal a company that’s operating efficiently, managing its debt responsibly and exhibiting dedication to shareholder returns.
But that doesn’t mean it comes without risk. Although TP ICAP’s niche market position gives it a wide moat, analysts have noted the possibility of AI replacing some of its products. And any major regulatory change to OTC (over-the-counter) trading rules could reduce its brokerage fee earnings and hurt profits.
Still, with group revenue up 7% in its latest results, I remain confident in the company’s directions. As such, I think it would be an ideal stock to consider for an income-focused retirement portfolio.
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Mark Hartley has positions in Admiral Group Plc, Legal & General Group Plc, OSB Group, Primary Health Properties Plc, and Tp Icap Group Plc. The Motley Fool UK has recommended Admiral Group Plc, Imperial Brands Plc, LondonMetric Property Plc, Primary Health Properties Plc, Schroders Plc, and Tp Icap 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.
