Just imagine £5,000 a month in passive income. That’s £60,000 a year, which is not far off double the UK median salary — sounds like the kind of thing reserved for people who already have money.
It isn’t. For anyone with a Stocks and Shares ISA and a long enough runway, it’s a realistic destination.
The maths is straightforward. A £1m portfolio yielding 6% annually produces £60,000 in income — £5,000 a month, tax-free inside an ISA. The 6% is achievable; plenty of high-quality UK dividend stocks yield at or above that level right now — however, it does introduce a level of risk that you may not experience closer to 4%.
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The £1m is the harder part — but not as hard as it sounds.
There are currently around 4,000 Stocks and Shares ISA millionaires in the UK. That’s a small number relative to the millions of ISA holders, but it’s growing, and there’s nothing especially unusual about the people who get there. They started early, contributed regularly, and let compounding do the work.
How long does it take? At £1,000 a month, assuming 10% annualised returns (roughly in line with long-run equity averages), a portfolio crosses the £1m mark in around 25 years. Contribute £1,500 a month and that falls to around 20.
These aren’t aggressive assumptions — personally, for instance, my portfolio is almost three times larger today than it was two years ago when we moved house (when I needed to dip into my ISA for the first time).
However, 10% is the kind of returns a broad equity portfolio has historically delivered over long periods. The enemy is starting late, stopping early, or keeping the money in cash.
In short, the path to £5,000 a month in passive income starts now. It’s about accumulation. Build the pot first. Deploy it into income-generating assets second.
Where to invest?
So what should investors actually buy?
A winning portfolio is often a diversified one. My portfolio has been successful in recent years with 20 investments plus bond holdings.
And one stock I continue to have faith in is Melrose Industries (LSE:MRO).
Melrose supplies advanced components to every major aerospace original equipment manufacturer in both civil and defence markets — and crucially, many of those positions are sole source (roughly 70%).
When an engine or airframe is certified with a Melrose part, that part stays in for the product cycle. That means decades of recurring revenue as the installed base flies on.
That’s the same structural advantage that commands a premium multiple at Rolls-Royce. Yet Melrose trades on a forward price-to-earnings of around 13.5 times — less than half what the market awards Rolls. I think that gap is too wide, and as Melrose’s earnings trajectory becomes clearer to the market, I expect it to narrow.
The risk worth acknowledging is tariff exposure. Melrose has significant US manufacturing and supply chain activity, and any escalation in trade policy could pressure margins or complicate customer relationships.
That said, I certainly believe this stock is worth considering.
