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What exactly is ‘income’? A quick Google search reveals the definition of required income “There is little and no work going on.” That doesn’t sound too bad. Earn money without elbow grease. What don’t you like? However, an easy way to build something along those lines, investing in stocks and shares, is something that most people don’t even think about.
It’s pretty much the same across Britain. Our population is over 68m these days and of those, only 22m put extra money into ISA tax vehicles. But even for ISA holders, only 4m of these accounts are Stock and Shares ISAs where passive capital investments lie. People seem to have great reasons not to invest in this way.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Difficult beginnings
One of the problems with building an income using stocks is how small the initial return is. A figure like 10% does not surprise anyone, for example. Sure, if you do the math, the investment starts to snowball given enough time, but the first year or two seems ridiculous. Anyone who can afford £200 may not be too happy to see an average £1.67 return in the first few months. Is that really worth giving up a day at the races or a new toy from Amazon?
But the way this type of growth works often changes the mind of a person, even those who have experience with it. I still remember a science teacher asking the class how long an A4 paper would be folded over 100 times. Most of us guess in millimeters or centimeters. One crazy classmate guessed more than a meter. The answer would reach the moon!
Stratospheric growth from startup investments can work too. Drop-feeding £200 monthly at 10% may not do much after a year, but after 40 years it balloons to over £1m. Although this little example takes longer than most would have to work with, it shows how this growth can make for some strange sounds.
A popular place to start is to recap the exponential growth in major tech stocks in the US. an apple (NASDAQ: APPL) is one company that I personally own and that I believe is worth considering for anyone hoping to build a second income.
Shopping?
The company is in its maturity stage, it is true. The days of rolling out a revolutionary new product every few years seem to be behind them and it’s hard to see the $3.4trn market cap showing much electric growth.
But Apple still makes the best electronic devices and it’s hard to find a home without a few of their products. Its ecosystem is sticky – it’s hard to get out of it once you get used to how all its products work together – and it has large capital levels and low liabilities.
Apple has outperformed other stocks even in recent years. The share price has more than tripled in the past five years.
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