Insights

Don’t ‘save’ for retirement! I’d invest $500 a month in shares for a $25,000 passive income

Saving money for retirement may lead to a disappointing nest egg due to low interest rates. Buying shares regularly could produce a larger passive income.
The post Don’t ‘save’ for retirement! I’d invest $500 a month in shares for a $25,000 passive income appeared first on The Motley Fool Australia. –

Investing for passive income represented by excited man surrounded by flying money notes

Building a nest egg large enough to produce a generous passive income in retirement is likely to be a key goal for many people.

Previously, it may have been possible to simply save money each month to achieve this aim. However, low interest rates over recent years, and especially after the 2020 market crash, mean that a cash savings account is unlikely to be helpful in building a retirement nest egg.

As such, now may be the right time to start buying shares on a regular basis. Even modest amounts invested in a diverse range of stocks could produce a generous income in older age.

Avoiding savings accounts

While having some cash on hand is always a good idea due to the potential for unforeseen circumstances, relying on savings to produce a retirement nest egg could lead to significant disappointment. They offer extremely low returns at the present time, as policymakers across the world have sought to stimulate the economy through a loose monetary policy.

In many cases, savings accounts may even struggle to keep up with inflation over the long run, as policymakers become more concerned about economic growth than a rising price level. As such, beyond having some emergency cash, avoiding savings accounts could be a sound means of improving the potential for a large retirement nest egg.

Making a passive income from shares

In place of savings accounts, a diverse portfolio of stocks could lead to a far more generous passive income. The stock market has a long track record of producing high single-digit returns that could provide growth to modest amounts of money invested on a regular basis.

Now may be an opportune moment to start investing in shares due to their low valuations. Many sectors have not yet fully recovered from the 2020 stock market crash. This could mean that they offer wide margins of safety that translate into high capital returns in the coming years. They may be able to catalyse a portfolio so that it produces a higher growth rate, and a larger nest egg, than investing in an index tracker fund that mirrors the performance of, for example, the FTSE 100 Index (FTSE: UKX) or S&P 500 Index (SP: .INX).

Building a $25,000 income

Even if an investor matches the performance of the wider stock market, they could invest a modest amount each month to produce a worthwhile passive income in retirement.

For example, assuming the same 8% annual total return managed by the stock market in recent decades, a $500 monthly investment could be worth $750,000 within 30 years. From this, a 3.5% annual withdrawal would produce an income of over $25,000. This could provide greater financial freedom and flexibility in retirement versus relying on cash. It could even allow an investor to retire earlier than would otherwise have been the case.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 6th October 2020

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Don’t ‘save’ for retirement! I’d invest $500 a month in shares for a $25,000 passive income appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!