Could you earn £1,000 a month in passive income with £34,800 in a Stocks and Shares ISA?
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A Stocks and Shares ISA can be a great asset for anyone looking to start investing. For those who are trying to generate monthly income, not paying dividends is very important.
There is an annual contribution limit of £20,000. But for investors with enough time and patience, I think aiming for £1,000 a month in passive income is a very realistic ambition.
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Interest rates
How much you really need to try and earn £1,000 a month depends on a few things. One of those is the stock market rate, which is heavily influenced by interest rates.
When interest rates are low, prices generally go up. And that means it can be difficult to find investment opportunities that can bring big returns.
Conversely, when rates are high, cash provides better returns and this can cause prices to fall. In these cases, there are often better opportunities available.
For most of us, there is nothing we can do about interest rates. But it is important to note that they have been falling recently – so the time to act may be now.
35% yield!?
Strictly speaking, there are investments available that seem to offer great returns. One of them is IncomeShares Magnificent 7 Options ETPit paid a dividend of 35%.
At that rate, £34,800 invested in a stocks and shares ISA is enough to generate a monthly income of £1,000. But there is – surprisingly – a catch.
The distribution of money from the product (combined strategy) has caused its share price to fall. Including those losses, the total return is 25% from June 2025.
That’s within 10% of what someone else would have managed by owning the shares below. So I’m not sure if this kind of product is some kind of stock market cheat code.
Logically
With interest rates where they are, I think a realistic target is around 5%. And there are several stocks – such Diageo (LSE:DGE) – offering this at today’s prices.
Diageo has struggled recently for a number of reasons. Some of the main causes have been tax costs and the weak macroeconomic environment and the risk is that they will continue.
However, a turnaround may be on the cards. Sir Dave Lewis has taken over with the intention of righting some of the company’s wrongs, but I think there may be more to look forward to than this.
I expect US trade relations to improve in 2026. And when that happens, sales and profits can continue to benefit the business.
Monthly income
If I’m right about Diageo, it’s a rare opportunity for income investors. A 5% yield means someone with £240,000 in an ISA has a real shot at £1,000 a month.
There is no way an investor should consider going all in on one stock. But as part of a diversified portfolio focused on income generation, it’s worth considering.
No one can put £240,000 into an ISA in one go. But at 8.5% a year – the latest average for the FTSE 100 – investing £20,000 a year could get them there before the end of 2034.
