How much do I need in a Stocks and Shares ISA to earn £500 a month?
One of the most powerful things a Stocks and Shares ISA can do is generate genuinely passive, tax-free income â and £500 a month is a goal that’s more achievable than many people realise. So what does it actually take to get there?
The maths is straightforward. £500 a month is £6,000 a year. To generate that from dividends, I divide £6,000 by my portfolio’s yield:
- At a 4% yield, I need £150,000
- At a 5% yield, I need £120,000
- At a 6% yield, I need £100,000
- At a 7% yield, I need around £86,000
The higher the yield, the less capital required â but higher yields can signal higher risk. A stock paying 10% is often doing so because the market doubts the durability of those payouts. Getting the balance right is the real skill here.
Building towards the target
Inside a Stocks and Shares ISA, every penny of that £6,000 annual income is free of tax. No income tax on dividends, no capital gains tax on growth. HMRC doesn’t see a penny of it.
For many of us, building a £120,000 ISA is the scary part. However, with the £20,000 annual ISA allowance and dividends reinvested, the path to a £120,000 portfolio is shorter than many expect. Assuming an 8% total annual return, a full £20,000 yearly contribution reaches the target in under five years.
Investing £500 a month instead? The same pot arrives in roughly 12-13 years, with compounding doing the heavy lifting throughout. Achieve a market-beating 10% annualised return and that figure is reached even sooner — 11 years to be precise.
The recipe is consistency and compounding, coupled with the ability to find shares that appear materially undervalued. Investors also need to remain diversified, but not so diversified that they lack conviction in some of their investments.
Investing for success
For most of us, the important part is investing to build the portfolio. And a large part of that is selecting the right stocks. In recent years, my portfolio has been full of winners from British banks to Nvidia, AppLovin, Celestica and, more recently, Innovative Aerosystems, Alphabet, and Micron.
Looking forward, I’m keen on Jet2 (LSE:JET2), Marvell, and Sanmina Corporation, among others.
So what’s so great about Jet2? Well, it’s the cheapest airline stock I know, and it’s got great operational momentum. The company’s known by millions — partly because of its viral advertising campaign — and its expanding its operating locations (adding Gatwick this year) and its fleet.
Revenue’s rising fast, from a projected £7.6bn in FY26 to £8.3bn in FY27. This is being driven by the operational factors above as well as steady demand for leisure travel.
Earnings growth is on hold for the moment as Jet2 invests in the new Gatwick operations and continued fleet investment. However, I believe we’ll start to see those investments pay off in 2026.
Fuel prices and economic risk remain an ever-present threat. UK unemployment has reached a five-year high and that’s not great for consumer spending.
However, this remains a resilient market in the post-covid years. And my interest in this stock is mainly valuation related. At 4.2 times forward earnings, when adjusted for net cash, it trades 50% below the sector average. I certainly believe it’s worth considering.
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James Fox has positions in Alphabet, Celestica, Jet2, Innovative Aerosystems, Marvell Technology, Micron Technology, Nvidia, and Sanmina Corporation. The Motley Fool UK has recommended Alphabet, Jet2 Plc, Marvell Technology, 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.
