How much do you need to invest in income shares to earn up to £500 a month?

Instead of working more hours each week, investing in income shares and collecting the dividends is a far more interesting way to increase my earnings and reach financial freedom. Even having an extra £500 a month can be a massive helping hand in today’s world of rising prices.

So how does this work? Let’s break it down.

Setting targets

£500 a month of dividend income adds up to £6,000 a year. And with FTSE 100 index funds currently offering close to a 2.9% dividend yield, investors need to have around £206,897 of capital to invest.

Needless to say, that’s not something the average person’s likely to have lying around. Luckily, there are some clever ways to reduce the amount of money needed.

Instead of relying solely on index funds, investors can build a custom portfolio of higher-yielding shares. Stock picking involves a lot more effort, but it opens the door to notably higher yields. And even if a portfolio only musters an extra 3% in dividends, that’s enough to bring down the required portfolio size all the way to £101,695 – roughly 50% less.

Assuming this portfolio also matches the stock market’s 4% average annual capital gain, investing £500 a month at this 9.9% combined total return for 10 years would unlock the required six-figure wealth.

Of course, securing a 9.9% annualised return between now and 2036 is by no means guaranteed. And if the stock market decides to take a tumble, investors could end up with less than expected. Nevertheless, with the right investments, a portfolio can go on to unlock phenomenal long-term wealth.

Quality trumps quantity

There are plenty of high-yielding income shares to pick from today. Some even offer payouts far beyond 5.9%, all the way to 10%+. However, while it can be tempting to chase these higher returns, it’s important to recognise that almost all of them come with significantly higher risks.

Take Ashmore Group (LSE:ASHM) as a prime example to consider. With a payout of 9.3%, the emerging market asset manager’s dividend by itself is almost enough to generate the target 9.9% return. But if that’s the case, why aren’t more investors rushing to buy shares today?

Despite emerging market investments delivering stellar results in recent years, Ashmore’s assets under management (AUM) have nonetheless struggled to grow.

Continuous net outflows of client funds due to wider market uncertainty are undercutting the firm’s ability to generate fee-earning revenue. So much so that the group currently doesn’t generate enough profit to cover its dividend expenses.

So far, management’s been maintaining shareholder payouts using its own financial resources based on confidence that its AUM will eventually start growing again. And to its credit, the group’s latest trading update did show signs of recovery with AUM climbing by 2%, or $1.1bn.

However, whether this trend will continue throughout 2026 remains unknown. After all, the emerging market landscape’s growing more volatile. Political instability in Latin America, an economic slowdown in China, and a rising number of debt crises in various emerging market countries could ultimately deter investor interest.

So while Ashmore’s yield is substantial, so is the risk – something that investors need to carefully consider before putting any money to work in these ‘generous’ income shares.

The post How much do you need to invest in income shares to earn up to £500 a month? appeared first on The Motley Fool UK.

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