[ad_1]
Image source: The Motley Fool
Bitcoin is one of the most divisive innovations ever. Some consider it almost a word for the future of finance. Others, like Warren Buffett, believe it has no intrinsic value because it doesn’t produce anything tangible.
Last year in the annual Berkshire Hathaway shareholders meeting, Buffett said: “If you [everyone in the room] own all the bitcoins in the world and you offer it to me for $25, I will not take it. Because what am I going to do?…Nothing”.
Actually, this will not pay any dividends. If I wanted to build a passive income empire, I would forget bitcoin and follow the ‘Oracle of Omaha’.
long term
“If you are not willing to own a stock for 10 years, don’t even think about owning a stock for 10 minutes.“.
This Warren Buffett quote remains one of the best encapsulations of long-term investing I’ve ever heard. When it comes to passive income, it will take time for most investors to build anything resembling an empire.
If I invest £5,000 in high yielding dividend stocks with a yield of 6%, then I can expect a minimum of £300 per year from my investment. (That’s assuming the dividend doesn’t ask for a cut, which is always possible.) When you welcome, that hardly changes your life.
So unless I have a huge amount of money to invest, I should probably take the long view. This means investing regularly to harness the power of compound interest.
The miracle of compound interest
The importance of compounding interests in building wealth cannot be overstated. In fact, Warren Buffett has said that: “My life has been a product of compound interests“.
The average person in the UK now has £17,356 in savings, according to research from the Building Societies Association (BSA). However, this obviously varies depending on age and occupation.
So let’s assume I start with £10,000 and commit to investing £150 a week for more savings into the US and UK stock markets. And I have a long-term stock market average return of 8.5% per year (with dividends reinvested).
Here’s what will happen:
| year | Savings (£150 x 52 weeks) | Fascinated (8.5% per year) | Total |
| 1 | £7,800 | £1,195 | £18,995 |
| 5 | £7,800 | £14,660 | £63,660 |
| 10 | £7,800 | £57,616 | £145,616 |
| 20 | £7,800 | £295,961 | £461,961 |
| 30 | £7,800 | £955,883 | £1,199,883 |
Passive income
A staggering £955,883 will come from the compound interest! If I then invest the total amount into a basket of dividend stocks that yield an average of 6%, I can earn £67,200 a year in passive income.
But this calculation is based on the market average. If I find a stock that beats the market average over time – like Warren Buffett – then the passive income numbers will be higher.
And this £1.2m figure does not factor in the potential to save and invest more in the future. Investing more in stocks that beat the market will fill the entire process.
In fact, after 30 years my passive income could surpass the £100,000 mark. In my view, from a few hundred pounds to this amount is equivalent to building an empire of passive income.
[ad_2]
Source link