With the cost-of-living crisis raging on, even a modest passive income can make a genuine difference, and one of the simplest ways to start earning it is by investing in income stocks. But as the saying goes, it takes money to make money.
So let’s say I wanted to earn an extra £500 a month from the stock market. How big does my portfolio need to be?
Crunching the numbers
With the average income stock generating a 4% yield, earning £6,000 a year passively requires a portfolio worth around £150,000. Needless to say, that’s obviously not pocket change.
The good news is that consistent monthly investing gets there without needing a lump sum upfront. In fact, investing £500 a month at the stock market’s long-term average return of 8% a year would reach £150,000 in roughly 14 years if I started from scratch today.
That’s not bad, but waiting 14 years is hardly ideal. And that’s where stock-picking can drastically speed things up.
When stock-picking beats the average
Investing in high-quality individual stocks can massively outperform the returns generated by passive index trackers. And Lion Finance Group‘s (LSE:BGEO) a perfect example of this in action.
This is the banking group behind Bank of Georgia and Armenia’s Ameriabank. And in the last five years, shareholders have enjoyed a staggering 59.8% annualised return. That’s 7.5 times the long-term historical average of the UK stock market. And it’s enough that anyone who has been investing £500 each month since August 2021 now has a portfolio worth roughly £175,843!
Of course, past performance is no guarantee of future returns. So can the rally continue?
Why the growth’s been so explosive
The bank’s first-quarter profits climbed 14%, with return on average equity running at an exceptional 27.4%, while the loan book expanded 23.1% year-on-year as both Georgia and Armenia’s economies kept growing strongly.
This quarter also marked a symbolic milestone: Lion Finance Group’s inclusion into the FTSE 100 index, something CEO Archil Gachechiladze called validation of “two decades of consistent execution”. And with a much larger asset base today, the bank looks set to continue growing its earnings and, in turn, its dividends.
Having said that, operating in emerging markets always carries extra baggage. Both Georgia and Armenia face genuine exposure to Middle East conflict spillover, primarily through higher energy prices and inflation. So much so that even management itself flagged this as a real and significant near-term risk.
Furthermore, currency and political risk also loom larger here than in a typical FTSE bank. Inflation’s already running above target in both countries, meaning that monetary policy could stay tighter for longer, potentially handicapping the loan growth that’s been fuelling these returns.
