How I’m building a new second income for 2035
I’m still in my early 30s, but I want to have the option to take a second income from my investments in a decade. I may choose to delay the taking of that second income, but I want to have that choice. After all, that’s why many of us invest. To give us more options in the future.
Still aiming for growth
My primary aim is to grow my portfolio. And in recent years this has involved a focus on US technology stocks. Companies like AppLovin and Celestica helped my portfolio almost double in value in 2024. Meanwhile, my UK holdings Barclays, Lloyds (LSE:LLOY), IAG, and Rolls-Royce vastly outperformed their peers. Admittedly, 2025 has been less auspicious so far. Nonetheless, undervalued stocks, often with strong momentum indicators, are those that I’m leaning on to grow my portfolio over the next decade.
As a rule of thumb, a portfolio growing at 7% will double in 10 years if no further money is added to it. And a portfolio growing at 10% will double in value every seven years. Realistically, will my portfolio be large enough to generate a life-changing second income in 10 years? I’m not sure. However, as a rough guide, I believe £500,000 would be enough to generate £25,000 annually. And with a 5% yield, there’s no need to take from the balance of the portfolio.
Switch to income stocks
If I do start taking a second income from my portfolio in 2035, I’ll likely shift my focus from growth-oriented companies to dividend-paying stocks and bonds. That would mean receiving a regular income in the form of dividends rather than potentially selling positions in growth-oriented stocks to deliver a second income. Government bonds, such as Gilts and US Treasuries, are typically considered among the safest forms of income. However, they rarely yield as much as they do today.
One effective strategy for building a second income in the future is to invest in companies with a strong track record of growing their dividends. Over time, consistent dividend growth can significantly increase the yield on the original investment, potentially reaching double digits within a decade. This approach combines rising income with capital appreciation, offering both stability and long-term financial growth. For example, Warren Buffett’s initial investments in Coca-Cola (NYSE:KO) now yield around 60%.
A dividend grower of my own
The Lloyds dividend is still appealing even after the stock recent rise. The forward yield is estimated to be 4.7%, which is still above the index average. However, analysts expect the dividend payment to grow from 6.7p per share in 2025 to 10.7p per share in 2027. This rate of growth may be unsustainable in the very long run, but it’s a good sign. In other words, buying the stock today would result in a 6.4% yield in 2027.
While there are short-term risks, including the ongoing motor finance case, in the longer run investors should consider that banks are typically cyclical. As such, there could be fluctuations in the dividend if the bank experiences a more challenging economic environment in five years or so. Personally, having already build a sizeable position in Lloyds, I’m not buying more right now.
The post How I’m building a new second income for 2035 appeared first on The Motley Fool UK.
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More reading
- Are Lloyds shares still a bargain near a 52-week high?
- £10,000 invested in Lloyds shares 5 years ago is now worth over £21,500
- What’s happening to the Lloyds share price?
- Here’s what £10,000 in Lloyds shares could be worth a year from now
- If an investor put £10,000 in Barclays and Lloyds shares 3 months ago here’s what they’d have now…
James Fox has positions in Barclays Plc, Celestica Inc, International Consolidated Airlines Group, Lloyds Banking Group Plc and Rolls-Royce Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, and Rolls-Royce 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.
