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With the cost of essentials rising so swiftly, thinking about covering the cost of luxuries from a second, passive income might seem like a nice idea.
Wouldn’t it be good to put away what we can each month into a Stocks and Shares ISA to aim for such a goal? It’s actually unlikely to be a huge amount for most of us. And those who can afford top-end luxury hols are unlikely to be interested in my ideas anyway.
There’s an extra bonus. If you can stash away enough investment cash to pay for your annual summer break in a reasonable number of years… isn’t that an incentive to then plan to meet the costs of another regular item? And then another. Keep it up, and you could be retiring sooner than you think.
What does it cost?
In 2024, a Legal & General (LSE: LGEN) survey found UK families budgeted £2,005 on average for holidays that year. That sounds a bit low to me, and many surely spend a lot more. But we’ll go with that.
I do, however, need to adjust for inflation. And I calculate that to be the equivalent of £2,178 today. What you get depends on whose inflation figures you pick, and which monthly figure you go on. But I reckon that’s close enough.
And seeing as it’s Legal & General that carried out the survey, here’s an interesting thing…
Invest for later
“Money makes money. And the money that money makes, makes money.“
— Benjamin Franklin, writing about compounding in 1748
What if, instead of spending £2,178 on a holiday, an investor bought Legal & General shares with it in an ISA each year? The company has a forecast dividend yield of 8.2% this year.
With that reinvested so it can compound up, after nine years there could be enough in the pot for future dividends to cover holiday costs every year from then on!
Well, we’d really need to raise our investment amount every year to keep up with inflation – but we’d have to do the same buying holidays anyway. And we’d need dividends to keep being paid — ideally also growing with inflation. Nothing is guaranteed.
But I reckon this shows the kind of thing that is realistically achievable from stock market investing without having to be super rich.
Need more baskets
Putting all our cash in just one stock would be asking for trouble, mind — especially considering the Legal & General share price has fallen 5% in the past five years. Yet I do think it’s one long-term investors should consider. And I really do mean long term — a minimum of a decade — as it’s in a very up-and-down sector.
But we need to diversify. Here’s a few more high-dividend stocks that are popular with investors seeking passive income.
| Company | Sector | Forecast dividend |
|---|---|---|
| Barratt Redrow | Home construction | 7.0% |
| NatWest | Banks | 5.7% |
| Greencoat UK Wind | Real Estate Investment Trust – energy | 10.6% |
| Telecom Plus | Telecommunciations | 9.0% |
| Primary Health Properties | Real Estate Investment Trust – health | 7.9% |
Investors need to dig into each one and weigh up the possibilities and risks. But this has to be a passive income strategy worth considering, don’t you think?
Should you invest £5,000 in Legal & General Group Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
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