How I’d make £25,000 in passive income by investing £500 a month in cheap stocks

first_imgHow I’d make £25,000 in passive income by investing £500 a month in cheap stocks Peter Stephens | Monday, 14th December, 2020 Image source: Getty Images. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! “This Stock Could Be Like Buying Amazon in 1997” I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Our 6 ‘Best Buys Now’ Shares Simply click below to discover how you can take advantage of this. Investing regularly in cheap stocks may not seem like a successful means of making a passive income to some investors. After all, many shares continue to trade at relatively low prices following the stock market crash.However, over time, they have the potential to deliver sound recoveries. In doing so, they may produce impressive capital returns that contribute to a growing nest egg from which a generous passive income can be drawn in older age.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Buying today’s cheap shares to benefit from a stock market recoveryThere are currently a wide range of cheap stocks available to buy that could improve an investor’s passive income prospects in retirement. Some sectors are relatively unpopular among investors due to their uncertain near-term operating outlooks. As such, they could produce impressive returns as the world economy’s performance improves and investors become less risk-averse.Certainly, they may face difficulties in the short run. Risks such as political uncertainty in Europe and the coronavirus pandemic may weigh on their prospects. However, in many cases, their valuations may account for a period of slower sales growth and weaker profitability. They may even offer wide margins of safety that do not factor in their long-term recovery potential.Buying cheap stocks has historically been a sound means of generating strong capital returns over the long run. The economy has always returned to positive growth following its downturns, while investors have continually returned to bullish viewpoints after bear markets. Therefore, investors who have purchased cheap shares and held them for the long term have often benefited the most from a stock market recovery. This may mean there is scope for today’s cheap shares to provide market-beating returns in the coming years.Focusing on high-quality businessesOf course, some of today’s cheap stocks are priced at low levels because of fundamental flaws that could negatively impact on their prospects. For example, they may have high debt levels that mean they are under pressure when making interest payments from lower levels of operating profit. Similarly, some cheap shares may have weak competitive positions that are now being exposed by an economic slowdown. This may cause their financial performances to lag sector peers.Therefore, focusing on high-quality companies that trade at low prices could yield higher returns, as well as lower risks. They may offer greater scope for capital returns in a stock market recovery that increases an investor’s chances of building a large retirement portfolio.Building a passive income in retirementEven if an investor’s purchase of cheap stocks provides a market rate of return of around 8%, they could build a worthwhile passive income with a modest regular investment. For example, investing £500 per month at an 8% return would produce a portfolio valued at £750,000 after 30 years. From this, a 3.5% annual withdrawal would provide a passive income in excess of £25,000.However, through buying undervalued shares today it may be possible to make higher returns to build a larger portfolio. In doing so, an investor could make a greater passive income in older age. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Enter Your Email Address Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. See all posts by Peter Stephenslast_img read more