Starting Afresh: Creating a £10k Passive Income Portfolio

As spring begins, it’s an ideal moment to set new financial objectives. Even if my savings account is currently empty, there’s ample opportunity to construct a passive income portfolio that could provide support in the future. Here’s my plan to make it happen.

Foundation Blocks

Starting off, I need to adjust my habits to allocate funds for investment each month. This isn’t something I can postpone. I could cut back on social spending or explore new side hustles to boost my income.

Once I’ve determined how much I can set aside, I focus on my ultimate goal. Assuming a fresh start, my target is generating £10k annually. The timeline depends on my investment capacity and may require adjustments.

My strategy revolves around using stocks to achieve this goal. I’ll primarily invest in dividend stocks for income, with a portion reserved for growth stocks. While growth stocks don’t provide immediate income, potential share price appreciation can contribute to future earnings. Selling some profits later can also serve as additional income.

Here’s one I made earlier

Barclays (LSE: BARC) serves as a prime example of a stock in my portfolio that aligns with these criteria. It represents a blend of both dividend stability and growth potential, promising sustained returns in the foreseeable future.

Starting with its dividend aspect, Barclays currently offers a yield of 3.93%, surpassing the FTSE 100 average, albeit not exceptionally high. However, as a mature bank, it boasts a lengthy track record of consistent dividend payouts, with uninterrupted income distribution since 2009, except for a minor disruption during the pandemic.

Regarding share price appreciation, Barclays has demonstrated a notable 27% increase over the past year. This growth is attributed to the CEO’s strategic initiatives aimed at enhancing the bank’s efficiency and profitability, despite recent job cuts. Despite potential short-term impacts, I view these measures positively in the long run, bolstering the stock’s valuation.

Nevertheless, a potential risk lies in Barclays underperforming compared to its global peers, especially larger American banks. However, given the ample market opportunities and regulatory constraints preventing sector dominance, I remain optimistic about Barclays’ ability to sustain profitability amidst competition.

Checking the numbers

By incorporating stocks like Barclays into my portfolio, I could target a dividend yield of 4% along with an additional growth rate of 4%. Assuming a monthly investment of £400 generating an 8% annual return, my portfolio could reach nearly £125k after 14 years. Subsequently, I could anticipate earning £10k in passive income the following year.

This strategy outlines a path to building a £10k passive income pot starting from scratch in May.

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