Incomes a second earnings could be performed in several methods. One is to spend money on a diversified portfolio of confirmed blue-chip shares that pay dividends.

Doing that in the way in which I illustrate beneath, an investor beginning with £20k at present might realistically hope to have a second earnings of £278 a month after 15 years – and a sizeable share portfolio in addition.

Right here’s the place the cash comes from

To start out, I’ll clarify the maths. That £278 a month is presuming a 6.5% common dividend yield. Compounding £20K at 6.5% yearly would imply that after 15 years, the portfolio could be price round £51,436. At a yield of 6.5% that must generate £278 monthly.

Now, 6.5% is above the FTSE 100 common yield, which stands at round 3.6%. My compound annual development charge might embrace some capital development, although in fact shares can fall in worth in addition to rise. It pays to decide on rigorously.

Nevertheless, on this instance I’m presuming 6.5% compound annual development from dividends alone. It’s effectively above the present FTSE 100 common however attainable in at present’s market from fairly a number of confirmed blue-chip dividend shares.

The kinds of shares to purchase – and the place to search out them

For instance, one share I feel buyers looking for a second earnings ought to take into account is Phoenix (LSE: PHNX).

The FTSE 100 insurer blows previous my 6.5% common yield goal, at the moment providing 10.3%. The truth is, that makes it the highest-yielding of any FTSE 100 share.

Yield alone isn’t the factor to deal with first nonetheless. In any case, dividends are by no means assured to final.

Phoenix does face dangers, like every firm. For instance, it has a mortgage guide. So if the property market plunges and valuations in actuality don’t mirror Phoenix’s assumption, it might endure a loss because it writes down mortgage values.

However on steadiness, I see lots to love about Phoenix. It isn’t a family identify nevertheless it owns some, akin to Normal Life. Phoenix goals to be the UK’s main retirement financial savings and earnings enterprise — and already has round 12m shoppers.

The enterprise has a confirmed mannequin for money era and within the first half of final 12 months generated £954m in money. That has helped fund a wholesome and rising dividend.

Easy methods to get the ball rolling

After all, dreaming of a second earnings and occupied with what shares might present it’s one factor. However not a single penny of dividends will roll in until an investor truly buys some shares!

For that, setting up a share-dealing account or Shares and Shares ISA would offer a house the place the £20k could possibly be parked now, able to be invested when the proper shares are discovered.