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One of my main investment goals is to enjoy a large and steady second income. Of course I am not alone in my search.
Earning income with little or no effort is the Holy Grail of investing. And I think building a portfolio of stocks, funds, and trusts is the best way to try to accomplish this.
If my investment is successful, I can sit back and watch the cash flow once I’ve chosen what to buy. I will have to look at my portfolio and reinvest any gains I get, at least. But the rate of return I can enjoy makes this light work worthwhile.
Indeed, the past performance of the UK and US stock markets suggests that even an investment of £300 a month could give me the second income I desire.
Strategies make sense
Since 1974, British stocks have delivered annual returns of between 7% and 8%. The return on Wall Street stocks sits at an even better 10% to 11%.
Stock markets can be volatile at times. It’s inevitable, but taking a long-term approach means that investors can ride out tough times for strong returns in the end. It’s the strategy on which Warren Buffett’s $140bn-plus personal fortune is built.
Stock pickers can minimize wild moments by building diversified portfolios. Owning, say, 10-15 stocks spanning different geographies and sectors can provide smooth returns throughout the economic cycle.
A rising gold stock, for example, can offset the impact of a falling stock during a recession.
High reliability
I Baillie Gifford US Growth Trust (LSE:USA) is a financial instrument that I would consider if I were building my portfolio from scratch.
This investment trust offers investors excellent diversification without having to buy many shares at once. It has shares “especially for listed and unlisted US companies [it] believes it has the potential to grow much faster than a typical company“.
Baillie Gifford’s trust enjoys a large scale of international companies that cover many sectors. Major holdings include a microchip manufacturer Nvidiaspace technology developer SpaceX, and payments specialist Stripe.
On the other hand, the trust’s ongoing charge of 0.7% is higher than other growth-oriented trusts and exchange-traded funds (ETFs). This can take a huge chunk out of my income.
Its growth oriented portfolio may not perform well during a downturn. However, the excellent benefits already delivered make it worth a closer look in my opinion.
~£23k passive income
Since its inception in 2018, the trust’s share price has increased by 114% in value. That equates to an average annual return of 12.1%.
Past performance is no guarantee of future returns. But if the trust form continues, a typical investment of £300 a month could turn into £573,749 after 30 years.
At this point, I could enjoy an annual income of £22,950 if I draw down 4% per annum.
With interest rates falling, and President-elect Trump promising to cut taxes and regulations, now may be a prime time to consider growing trusts like this.
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