How much do you need to invest in the stock market to stop work and live off dividends?

Like many investors, I’m putting money aside each month to buy shares and build enough wealth in the stock market to eventually enjoy financial freedom. After all, who doesn’t want to live off dividends and never have to work again?

But how much money does it actually take to make this happen?

Crunching the numbers

According to Pensions UK, the minimum amount of income someone needs to live a comfortable retirement is £43,900 a year. But to add a bit of wiggle room, let’s set a target of £50,000.

On average, the UK stock market offers a respectable yield of around 4% a year. But by being more selective, it’s possible to increase this to around 5% without taking on excessive additional risk. And at this rate, a £50,000 annual passive income would require a £1m investment portfolio.

Obviously, most people don’t have this sort of cash just lying around. The good news is, even when starting from scratch, compounding can enable even modest investors to gradually build to this ambitious milestone over time.

Assuming a portfolio matches the market’s 8% annualised average (which isn’t guaranteed), then even drip feeding as little as £250 a month could be all that’s needed.

Accelerating wealth

Stock picking not only offers the potential for higher yields, but higher overall returns as well. There’s no denying this is a riskier and far more hands-on approach to building wealth. But when executed successfully, the results can be game-changing as many Ashtead Group (LSE:AHT) shareholders have discovered first-hand.

Over the last 20 years, there’s been a secular shift within the construction industry. Contractors and industrial operators are increasingly viewing equipment ownership as a capital-intensive drag on their balance sheets. As such, equipment rental has and is still becoming increasingly popular.

Ashtead spotted and capitalised on this trend far earlier than its competitors. And this first-mover advantage, combined with an exceptionally cash-generative business model, has transformed the business into a global titan, generating a staggering 4,472% total return for investors in the process.

That’s the equivalent of a 21% annualised return. And at this rate, the journey to reaching £1m is drastically shortened.

Still worth considering?

Even in 2026, the transition from ownership to rental is still ongoing. And analysts are projecting the global market size to reach $250bn by 2032, $93.5bn of which is concentrated in Ashtead’s key market of North America.

Comparing this market opportunity to Ashtead’s $10.8bn in revenue last year, the company seemingly has plenty of room for long-term growth. However, it’s important to highlight that there are still risks that come with this.

While Ashtead’s begun diversifying its equipment portfolio outside of the cyclical construction sector, this industry nonetheless still drives the bulk of profits. At the same time, higher inflation’s driven up the cost of maintaining equipment, putting pressure on profit margins.

Nevertheless, with such an impressive track record, Ashtead shares could be worth a closer look from investors seeking to build long-term wealth in the stock market.

The post How much do you need to invest in the stock market to stop work and live off dividends? appeared first on The Motley Fool UK.

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• Want to aim for a million with a spare £500 per month? Here’s how!

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Ashtead 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.

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