How to build towards a lucrative second income without chasing ‘get-rich-quick’ schemes

Many people look to a second income as a way to safeguard their finances, fund a large purchase, or simply save for retirement. But many of the ‘passive’ income schemes advertised online involve a lot of initial funding, a lot of time, or a lot of risk. Not exactly passive.

Of course, nothing worth doing comes easy. But few people actually have the free time required to build an income from a side hustle. That’s why investing in dividend shares on the stock market can be an attractive option. Rather than an expensive, time-intensive endeavour, it only requires patience, dedication and regular monthly contributions.

Let’s break it down in finer detail.

Low-risk income investing

One of the key things that scare people away from stock market investing is the risk of losing money. That’s real, and it can happen.

But when you actually look at the statistics, most committed investors make decent profit over a 10-20-year period. The scare stories you read about typically involve ‘day traders’ taking short-term risks on speculative stocks.

The problem is, most people don’t want to wait 10-20 years before seeing a return. This is understandable but keep in mind — many side businesses can take up to five years before seeing profit — and those are the few that succeed.

Me? I’d take the relatively low-risk, hands-off approach of stock market investing any day. So how can a novice get started working towards a second income on the stock market today?

Portfolio planning

When discussing income, the focus tends to be on dividend-paying companies — that is, those that pay regular cash rewards to their shareholders. However, no matter whether you’re aiming for high growth or steady income, every portfolio should be well-diversified across several sectors and asset classes.

Here’s a basic example:

The addition of growth stocks is particularly important when starting out, because they help compound the pot quicker. Reinvesting dividends can further add to this effort.

A key example

Legal & General has long been a favourite among dividend investors chasing income. The financial giant combines a prominent income profile with exposure to enduring financial needs, including pensions, retirement planning, insurance and asset management.

Its scale and recurring fee-based revenues support consistent dividend payouts, often helping to maintain a yield between 7%-9%. Maintaining dividends requires resilience, which it draws from its diverse exposure to several businesses rather than a single product.

But still, that doesn’t make it immune to risk. Volatile market conditions, capital requirements, regulations, and weaker operating performance have hurt profits in the past and could do so again. When profits slip, dividends are often the first to take a cut.

Up only 15% in the past five years, growth seems weak. But the total return (including dividends) is closer to 65%. That’s an annualised return of 10.53% a year — not bad and worth considering!

The bottom line

Chasing quick money seldom pays off. Patience and dedication may sound boring, but thousands of investors will attest to its value. The trick’s building a solid foundation of diversified stocks spanning defensive, income and growth assets.

Then simply sit back, invest regularly, and watch your nest egg grow exponentially.

What income stock do we like better than Legal & General Group Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Mark Hartley owns shares in Unilever, National Grid, Legal & General, British American Tobacco, Tesco, Diageo, and AstraZeneca.