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Camilla Care

£20,000 in a new ISA? Here’s how I would aim for a lifelong second income

Vaseline 1 month ago

Young mixed race woman jumps for joy in a park as confetti falls around her

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There are plenty of ways to earn a second income. We can take on a second job, we can invest in real estate that we can buy to rent out, or we can invest in stocks and shares. It will come as no surprise that I favor the latter.

However, it will take time to get to the point where I am earning a large tax-free second income from my portfolio. That’s because even if I had £20,000 in a Stocks & Shares ISA, the most I could realistically earn in the first year is £1,400.

However, if I were willing to grow my investment, I could earn a lot more in the future. The point is that it requires sensible and data-driven investment decisions.

Take a long-term approach

The long-term approach is certainly my way of working. I don’t need the second income today, but I appreciate that I may need it in the future.

So every year I reinvest my returns and go again. This allows me to benefit from so-called compound returns. Compounding happens when I earn interest on my interest, and it is the real magic of investing.

But I have to pick the right stocks. Because if I invest poorly, I can lose money. So I need a diverse stock portfolio, and one of my favorite choices right now is GigaCloud technology (NASDAQ:GCT).

The name is a bit misleading. Essentially, the company connects furniture manufacturers in China with resellers and customers in North America and Europe.

Gone are the old models of unsold furniture – which take up a lot of space – sitting in showrooms or storage facilities in the country of sale.

GigaCloud takes the furniture from the factory and delivers it to the customer abroad, while sales are largely handled by other companies.

In fact, if I have a Amazon store that sells furniture, I could use GIgaCloud to do all the logistics without ever seeing the product.

Some investors were skeptical of the company, but recent research has shed light on the company’s activities. And the outcome was positive.

GigaCloud has noted that disruption to maritime shipping could cause problems, especially on the routes between Asia and Europe, and if conflicts escalate.

And finally, from a valuation perspective, it trades at 12.1 times forward earnings. And that looks great given the growth trajectory.

Based on profit expectations, GigaCloud is trading at 9.7 times earnings for 2025 and 7.8 times earnings for 2026.

Create lifelong income

GigaCloud is one of those companies that I believe can advance my portfolio and help me achieve my goals. If I could grow my portfolio by 10% annually and contribute an additional $200 per month, I would have $171,972 after 15 years.

Assuming an annualized dividend yield of around 7% – which is possible today, but may be more difficult in 15 years’ time – I would take home a second income worth £12,038. And that could grow every year, because companies tend to increase their dividend payments over time.