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There are lots of ways to try and earn a second income in 2026. Savings accounts are one strategy, but the stock market offers investors a way of getting into the fast lane.
In general, investing is riskier than saving and returns from the former aren’t guaranteed. But when things go well, the difference between the passive income generated by each can be huge.
Savings: slow and steady
Right now, savings accounts are typically offering around 3.5% interest. At that rate, putting aside £100 a month will build an account returning £2,000 a year within 30 years.
There’s a lot to be said for this. The most obvious is that the cash is virtually guaranteed to be there if you ever need to take it out at any point in the next three decades.
That’s a big advantage, but there is a big drawback to savings. It takes a long time to earn meaningful income and a 3.5% annual return is barely enough to stay ahead of inflation.
For those who won’t need their cash in the near future, having access to it isn’t really much of an advantage. In these cases, investing offers a shot at something much bigger.
Investing: accelerated returns
Buying shares in companies that return cash to investors as dividends is another way of trying to earn a second income. And the returns can be much more impressive.
Dividends are never guaranteed and share prices can be volatile. But the increased risks often come with much higher potential rewards for investors over the long term. Right now, there are stocks available that come with dividend yields of 7.5%. At that rate, a £100 monthly investment compounds to a £2,000 annual income within 14 years.
Investors do need to be careful – big dividend yields often come with high risks. But there are at least a couple of stocks that I think income investors should take a close look at.
Real estate
AEW REIT‘s (LSE:AEWU) a good example. It’s not the best-known business in the world but it’s a real estate investment trust (REIT) that comes with a 7.5% dividend yield.
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The firm owns a portfolio of 34 properties, but its strategy is what makes it unique. It focuses on short leases, where renewals create chances to increase rents with new contracts.
That can be risky – there’s always a chance that tenants might not renew and that would create a potential problem. But the company has a strategy for managing this.
AEW focuses on opportunities where alternatives are limited. That both helps limit the risk of them going elsewhere and strengthens the firm’s ability to negotiate rent increases.
Risks and rewards
There aren’t many stocks with 7.5% dividend yields that I think are worth considering, but AEW REIT is one of them. Its unique strategy sets it apart from other REITs.
Given the risks of investing, nobody should be ploughing all of their money into this – or any other – stock. But I definitely think it’s worth a look at for someone with spare cash.
Investing at 7.5% means a chance of reaching investment targets in half the time compared to saving. And that’s got to be worth considering for investors looking for a second income.
