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Building a second-income generating portfolio from scratch might sound daunting, but it’s easier than many people think.
The challenge isn’t getting started — although it can seem that way — but it’s being consistent and investing wisely over time.
A Stocks and Shares ISA can be a powerful tool for this, providing tax-free growth and income that compounds year after year. With patience, discipline, and a clear plan, it’s entirely possible to turn even modest monthly contributions into a life-changing second income.
Of course, generating a reliable £2,500 a month doesn’t happen overnight. It takes years of steady investing and reinvesting to build the kind of capital base that can support that level of income sustainably.
But by focusing on data-driven investments, investors can gradually create a portfolio that works for them — even while they sleep.
The beauty of compounding is that time does most of the heavy lifting. Whether starting with £100 or £10,000, the earlier those pounds are put to work, the greater the long-term rewards.
Let’s look at the maths
So how much capital would an investor actually need to generate a £2,500 monthly income from their ISA? Let’s break down the numbers.
Well, with an ISA I’d say investors should be able to take 5% annually in the form of dividends and maintain or grow the principal. So we’re looking at £30,000 a year which means a £600,000 portfolio.
Now, that’s not something we can build overnight, but it’s very achievable even when starting with nothing. Let’s assume a 20-year time horizon. In this scenario it would take £1,000 of monthly contributions and an 8% annualised growth rate.
But there are three variables. More time, less money required. Stronger growth, less time and money required.
A stock to outperform the market?
In order to grow a portfolio faster, investors need to consider ways to beat the stock market. And, as noted above, I prefer a data-driven approach. And one stock that stands out here is Jet2 (LSE:JET2).
The stock currently trades at 6.4 times forward earnings and the forecasts indicate steady earnings growth from here on. This figure falls to 5.9 times for 2026 and 5.6 times for 2027.
This is already better than many of its peers, but the real value lies in the company’s balance sheet. The company’s market-cap is just £2.6bn but it’s sitting on £2.1bn in net cash — that includes customer deposits.
In other words, the company’s enterprise value is actually equivalent to just 1.2 years of net income. It’s very rare that we see a company this cheap.
Of course, there are concerns. Employment costs have gone up and that appears to hurt airlines. Likewise, aviation fuel costs are currently low, but any additional pressure could hurt margins.
However, the overall picture is one of a very healthy and well-run airline. I certainly believe it’s worth considering.
