£20,000 in savings? Here’s how it could be used to target passive income of £8,640 each year
It’s common knowledge that the stock market is a vehicle for growing wealth. Those with ample piles of cash lying around can invest in companies and reap the rewards. What is less well-known is the very same process works just as well, if not better, for those without millions to spare. A £20,000 lump sum, less than a third of the average 2025 house deposit, can transform by many multiples higher into a nest egg capable of generating a healthy and lifelong passive income.Â
Life-changing
One of the first questions any would-be investor must ask themselves is about their investing timeline. Rome wasnât built in a day, and investing works on a similar basis. Those with an investing timeline of 20 years or more might see returns that dwarf others who are only in it for the short haul, all other things being equal.Â
Using yearly 10% gains (a common rule of thumb), the £20,000 becomes £32,000 after five years but £216,000 after 25 years. The short investing timeline might be lucrative, but the longer investing timeline can be life-changing.Â
The long-term approach should be used when building a portfolio too. Tech giant Apple (NASDAQ: APPL) is an example of a stock that might eclipse market-average returns over a multi-decade investing timeline.Â
Be they smartphones, watches, or computers, the $3.5trn market cap tech giant’s products are best in class. This makes the company’s earnings very inflation-resistant. The technical term for this is ‘pricing power’ where customers are willing to eat price rises in products they simply canât get anywhere else. Apple has pricing power in spades.Â
One notable drawback is the Trump tariffs. Apple produces 90% of iPhones in China so any duties are going to bite.
Whether Trump follows through with the plans or not is still very much up in the air, but I expect this hitch to be temporary in nature and I’m investing for the long term. Over a longer timeline, I think Apple is one stock investors should consider.Â
Big boost
When all is said and done, the attraction of this kind of strategy is in the passive income. Our hypothetical £216,000 would deliver £8,640 yearly at a modest 4% drawdown rate. Thatâs money that can supplement a pension, boost disposable income, or even support charitable purposes. And thatâs not even the half of it.Â
Seasoned investors know that the starting sum is a small piece of the puzzle. With regular top-ups or drip-feeding extra cash from the day job, the passive income can be significantly boosted or the number of years in our investing timeline reduced.
Trust the process, as a popular sports saying goes. Well, investing in stocks now for a passive income later sounds like a pretty good process to me.
The post £20,000 in savings? Hereâs how it could be used to target passive income of £8,640 each year appeared first on The Motley Fool UK.
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John Fieldsend has positions in Apple. The Motley Fool UK has recommended Apple. 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.
