£1k in savings? Here’s how investors can aim to turn that into a £9,600-a-year income

I intend to build a high and growing secondary income from a portfolio of stocks and shares, and I don’t think I need to be an investment expert to do it. Which is very helpful, because I don’t have the stock picking skills of billionaire investor Warren Buffett. Hard experiences have taught me that.

The truth is that most of us don’t. But that’s okay because private investors have one weapon at their disposal. Time.

Over the years and decades, building a diverse spread of FTSE 100 stocks can be a great way to turn small sums into liquid income. And you can start with as little as £1,000 (or less).

Generating secondary income from shares is not without risks. Stock markets rise and fall all the time but over the years, history shows returns that beat almost every other asset class.

FTSE 100 stocks are a great source of income

Even the UK’s biggest green chips can be volatile. A good way to do this is to invest in a spread of about 15-20 different stocks, prioritize strong, established names with loyal customers and track records of steadily increasing returns.

Tobacco maker British American cigars‘s (LSE: BATS) is an excellent example of the type of dividend stock the FTSE 100 is at the forefront of that is worth considering.

Although tobacco is under constant regulatory pressure, British American tobacco still turns 500 billion sticks a year. And it’s making a big push into what it calls ‘smoke-free products’.

Personally, I don’t buy tobacco stocks but it means I’m missing out on a smart source of budget income. British American Tobacco has a trailing yield of 7.95%. Any share price growth comes on top of that. Over the past year, the stock has grown 25% to provide a total return of nearly 33%.

There are risks, of course. Cigarettes kill. Vapes will meet increasing resistance. It is a competitive field. But British American Tobacco has survived these threats, thanks to its strong product range.

Over the past 20 years, the FTSE 100’s have delivered an average return of 6.9% per annum, with all profits reinvested. Investors can beat that by picking individual stocks. But even if they don’t, UK shares will still build wealth over time.

At 6.9% per annum, if an investor invested £1,000 in the FTSE 100 at age 30 and left it in the market until age 68, they would have £12,623. If they drew 5% of their pot each year, that would give them £631 in passive income in retirement.

How stocks grow in value over time

That’s not a fortune, but it’s not bad from a starting £1k. However, investing is not a one-time thing. If they invested £1,000 a year for those 38 years, they would have £192,691 at 68.

Again, this assumes an average growth of 6.9% per year. Drawing 5% of that would give them a second annual income of £9,635.

There are no guarantees when investing. An investor can get a profit lower than 6.9% per annum. On the other hand, they can get higher.

In reality, most of us should aim for more than £192,691 to have a comfortable retirement so far into the future. That means investing more than £1k a year.

But it’s a start. And you don’t have to be an investment expert to get cracking.