The idea of your stock market investments paying you a regular salary to cover day-to-day expenses is an attractive one – the ultimate example of getting your money
to work for you.

The amount you would need to put into the markets to set yourself up for an income of £10,000 from your investments depends on several factors, including the level of risk you are prepared to take on and the amount you can invest.

Let’s assume you are starting from zero. If you could find £650 per month to invest in a portfolio of funds, perhaps even between you and a partner, in a little more than 21 years you would be sitting on a pot worth £250,000. This is based on a relatively conservative annual return of 4.5% and charges of 0.75%.

You need to accumulate these funds within an ISA tax wrapper if you want to avoid tax liabilities. Fortunately, the implied annual investment in this scenario is well within the current £20,000 annual ISA limit.

With dividend-paying investments worth £250,000 you should get an annual income of £10,000 assuming a dividend yield in line with the 2018 yield on the FTSE 100 of around 4%.

HOW TO GET THERE FASTER

There are three options if you want to get to the £10,000 goal faster. You can invest in higher risk, higher reward assets; you can look for higher yielding investments; or you can invest more each month.

If you were prepared to take on more risk to achieve a return of 7.5% you could get to £250,000 in around 17 years.

However, you would be putting your capital at greater risk and if you suffered losses as a result it could end up taking you longer to achieve your targeted income.

If you targeted a yield of 7% rather than 4% you would need to build up a portfolio worth £142,900. This would only take 14 years and one month to accumulate if you invested at the same rate of £650 per month at a 4.5% return.

Several enhanced income funds exist; essentially these sacrifice some of your capital growth in return for a higher yield. Examples include Insight Equity Income Booster (GB00B7XF7Y37) and Schroder Income Maximiser (GB00B0HWJ904).

As a rule, a high yield can be the market telling you this source of income is potentially unreliable. If dividends are cancelled or cut, you would fall short of the £10,000 dividend target. The only sure-fire way to get there more rapidly is to invest more money each month.

Developing a healthy regular savings habit is truly one of the best ways of building up a sizeable portfolio in time.

Reinvesting your dividends during the accumulation phase of your investment plan could also help to boost your wealth thanks to compounding benefits.

Ultimately, by investing in a portfolio of reliable and lower risk dividend-paying investments you would be positioned for further capital growth and a potentially larger income over time once you had reached your initial goal. (TS)

HOW to get your investments to pay you £10,000 per year

A £250,000 portfolio at 4% annual yield 

= £10,000 income per year.

Invest £650 per month and achieve 4.5% annual return 

= £250,000 after 21 years and 3 months.

Higher risk/return approach

Invest £650 per month and achieve 7.5% annual return

= £250,000 after 17 years and 4 months

Put more money into your ISA

Invest £1,000 per month and achieve 4.5% annual return

= £250,000 after 15 years and 6 months

Target higher yielding investments

A £142,900 porfolio at 7% annual yield

= £10,000 income per year

Invest £650 per month and achieve 4.5% annual return

= £142,900 after 14 years and 1 month

The sums factor in 0.75% annual investment charges

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