One way to build a second income stream in 2024 would be to take on an extra job.
But an alternative approach that does not involve any work on my part would be to purchase shares I hoped could pay me dividends.
I could do that even if I start the year with no investments. As an example, this is the 2024 second income plan I would use if I had a spare fiver a day to invest.
Getting ready to invest
I would start with the practicalities.
To buy shares I need some sort of investment account. So I would set up a share-dealing account or Stocks and Shares ISA.
That way, I would be ready to invest as soon as I found shares to buy and had some money saved up in the account.
Doing the maths
Saving £5 a day to invest would give me over £1,800 a year to put to work.
What might that look like in terms of generating a second income? If I achieved a 5% dividend yield, my first year of £5 daily investment ought to generate around over £90 in dividends annually.
That would be welcome. But it is not the stuff of millionaires’ dreams. So how could I aim to boost my second income while still saving just £5 each day?
Growing the income
I see three main ways.
First, if I keep saving, over time the amount I have available to invest would grow. That is simple maths.
Secondly, I could choose to reinvest dividends (known as compounding) rather than taking them out as cash. That would give me more funds to invest and at some future point I can decide to stop compounding and start receiving dividends in cash if I wanted.
Thirdly, the size of my second income would depend on the average yield my portfolio generated. The higher the yield, the more income I should earn.
Going for quality
So does that mean I ought to invest only in high-yield shares such as Diversified Energy, with its 26% yield?
Not necessarily.
A high yield can be attractive. But it alone is not a good reason to buy a share, in my view. Instead, what I am looking for is brilliant businesses selling at attractive prices. Only then do I consider their dividend yield.
For example, one share I bought this year to boost my second income is Legal & General.
I like the company’s large customer base and iconic brand, although I do see a risk that volatile financial markets could hurt profitability. With its 7.9% dividend yield, Legal & General is exactly the sort of blue-chip business combining a business I like with a dividend I am very happy to receive!
The post My £5 a day second income plan for 2024 appeared first on The Motley Fool UK.
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C Ruane has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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