Here’s how I can target an income of £10k a year by investing just £100 a week

My investment goal is to build income for retirement. I have been working on it for some years.

But how would I start in today’s difficult times?

After several years of high inflation and high interest rates, I have less money to save each month.

But Low Dividends and Dividends ISA payments mean you really don’t have to be rich to invest in shares. And it’s amazing how much £100 a month, or even just £50, can add up over time.

For many, that’s the cost of spending the night. But I don’t waste money at night.

Preferred stocks

The hardest thing for me is choosing the next stock to buy. There are just too many of them FTSE 100 these days you pay good benefits and low rates.

That’s really good, as it makes it easier to build a diversified ISA and reduces overall risk. But as an illustration, I’ll use one of my long-time objects, Aviva (LSE: AV.)

The first thing to note is that the share price has been volatile, as we can see in this chart:

Look at those benefits

The second thing to note about Aviva is the annual yield of 7.5%. That’s a lot, and analysts think the earnings will be there to cover it over the next few years.

The worst thing about a dividend is that there is no guarantee, and it can be the first thing to be cut off in hard times.

The insurance industry can be cyclical as well, and I don’t expect Aviva to fare well in the coming decades.

But it’s a sector that has lost a lot of money over the years. And if I hold for a long time, I expect the result to be completely smooth. I also buy shares in other sectors to reduce risk.

Composite magic

I wouldn’t put just £100 into shares at once, as the transaction costs would eat into that too much. But if I keep it in my ISA I can quickly build up, say, £1,000 to invest.

After a year, I can add £75 in dividends to the pot for every £1,000 in Aviva shares. In fact, I bought something different each time, but I’ll stick with the 7.5% dividend to keep the math simple.

If I keep doing it, and reinvest my dividend money each year, things should build up nicely because of the power of compounding.

After five years, I would have £31,393 in my pot. Give it 10 years, and I could reach £76,462. And just 15 years in to get me to £141,163. A 7.5% dividend on that amount would produce an income of £10,587 a year.

Just assignments

This came from dividends, apart from share price gains. However, it is based on just one summary now. And I expect ups and downs from Aviva in the long term.

It’s just an illustration. But as part of a diversified portfolio, I would expect to beat the pants off the Cash ISA in 20 years.