I would invest £10 a week for £15,313 in annual passive income

Many of us dream of passive income. That could mean a few hundred pounds a month for dinners out, or it could be thousands of pounds a year, theoretically allowing us to retire early.

However, many of us may think that investing is reserved for people with a lot of money. And that’s simply not true. That’s why I’m here to show you how I can create a passive income stream worth £15,313 a year, by investing just £10 a week.

A proven strategy

When we don’t have a lot of money to invest, time and patience is the key. We can’t expect to turn our $10 a week into a huge portfolio overnight, despite what you may hear on social media. We must build our portfolios without taking unnecessary risks. Because if I make bad investment decisions, I can easily lose money.

The key is something called compound returns. This is what happens when we reinvest what our portfolio earns each year, allowing it to grow from a larger base. Just look at how £1,000 grows by 10% every year. The interest is increasing time and time again.

But if we want to convert €10 per week into something bigger, we have to invest much longer. There will be good years, and there will be bad years, but in decades it will be the same.

If I were to apply compound returns for 35 years and manage to achieve a 10% annual return, I would have $153,131 after 35 years. That’s enough to generate £15,313 per year as passive income.

Using the Stocks & Shares ISA

The Stocks and Shares ISA is a wrapper for our investments that protects all our gains from tax. It is a hugely important part of my investment strategy. It allows me to do two important things. First, I can build my portfolio without having to pay taxes when I sell profitable investments. It also means that my passive income would be completely tax free.

Please note that tax treatment depends on each customer’s individual circumstances and may be subject to change in the future. The content of this article is for informational purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Invest wisely

If I invested just $10 a week, I might be tempted to put my money in a fund or ETF. Scottish mortgage (LSE:SMT) could be a good option for the growth stage. It has underperformed in recent years, but the trust has a track record of beating the market.

Scottish Mortgage invests in growth-oriented companies. The majority of investments consist of listed shares, such as the lithography giant ASML and AI enabler Nvidia. However, some of the trust’s investments are in privately held companies such as SpaceX.

The selling point is that Scottish Mortgage has a team of investment analysts who can scour the market and unlisted companies to find the best investments. It owned Tesla before it was a household name.

The disadvantage is that not all their investments yield results, and that as a trust they are less flexible than we are as individual investors. I would suggest that as individual investors we have a greater ability to drop investments that aren’t working Modern.

Over the past five years, Scottish mortgages have remained virtually flat. But over ten years it has increased by 300%. That is 30% per year.