Image source: Getty Images
To the surprise of absolutely everyone, it turns out people in Britain have tonnes and tonnes of ‘excess cash’. Recent analysis from Barclays found that UK savers have amassed £614bn of spare cash. That’s around £11,245 each, on average, if we divide it among the 54.6m adult Britons. Doubtless there are a few mega-hoarders in among the group, but that’s still plenty of money that’s on the sidelines. Instead, investors might use it to grow and perhaps create a second income.
Barclays uncovered the data as part of UK stock market boosting efforts. That’s trying to get people to boost the UK stock market through investing in British companies. Is that the right move for these folks? Is it a no-brainer for these cash holders to start reallocating into the London Stock Exchange?
Careful selection
Let’s leave aside those saving for a house deposit or wedding. In these cases, investing in something as erratic as the stock market could spell bad news. It might result in missing that first step on the housing ladder or wedding bells being postponed. It should be mentioned also that the increase in these cash deposits, up by a third since 2022, coincides with higher returns from saving accounts. Folks are probably liking the look of a safe 4%-5% on investment.
But interest rates are falling. The Bank of England has made a few cuts already. And taking a long-term approach and aiming for a 10% return from stocks and shares with that £11,245 builds to £196,219 over 30 years. A 4% draw down earns a yearly second income of £7,849. And that’s without topping up that cash with regular saving. This can propel the income to new heights or simply shorten the duration it takes to get there.
Chugging along
Some even target a higher drawdown through careful selection of dividend stocks. A stock like BP (LSE: BP) draws massive revenues. Its £136bn sales last year looks gargantuan compared to a £67bn market cap. The oil major’s cash flows are often redirected to big dividends. Take 7.3%, 7.5%, and 8.0%, the forecasted yields over the next three years (though dividends are never guaranteed).
There is no such things as a free lunch, however. Oil seems to be in terminal decline. Little share price appreciation might occur from here on out. Depending on the speed of the green energy transition, shareholders could find their shares worth a great deal less in a few years.
There’s no guarantee of that either. A new multi-billion pound discovery of a huge oil and gas field off the coast of Brazil might keep those dividends chugging along for decades.
All in all, BP may be a stock worth looking into for anyone keen on a second income.
This story originally appeared on Motley Fool
