How much money would one need in the stock market to earn a second income of £500 a week?

Have you ever thought about investing in other stocks to try to build a second income from stocks?

After all, it’s a British blue-chip FTSE 100 firms pay well over £1bn each a week average to dividends.

That goes to shareholders who don’t have to do anything to earn it, other than owning those shares.

Dividends can be very profitable

Building a second income by setting up a stock portfolio sounds straightforward. It can also be profitable.

But there are risks too. Shares are not guaranteed to last. Falling share prices can also eat away at capital, even if dividends keep flowing.

On the other hand, shares can grow – and so can share prices.

Obviously, it makes sense for an investor to take the time to figure out which stocks would be the best fit for their hunt to weigh the potential rewards and risks.

Here’s what it takes to earn £500 a week!

It means someone’s second target income is £26k a year, which works out to £500 a week.

How much they need to invest will depend on the average dividend yield of their portfolio. The yield is basically the earnings one expects to receive in a year, expressed as a percentage of the purchase price.

Currently, the FTSE 100 index is yielding 2.9%. Say someone aims to double that: a 5.8% yield. In today’s markets I still think that is possible while sticking to the top stocks.

At a yield of 5.8%, a second annual profit of £26k would require an investment of around £448k.

Little by little to build an income generating machine

£448k is a lot of money. But it doesn’t have to be all invested at once.

In fact, one can start from zero today, and throw in food money later, building on that goal.

Say they do that for £1k a month, compounding at 5.8% per annum. Over the course of 21 years, the portfolio must exceed the required £448k.

At that point, instead of continuing to accumulate dividends, they can start taking them out as a second income, without needing to contribute another cent.

Choosing the right way to invest

There are different platforms that one can use for that general savings, consolidation, and investment.

It therefore makes sense for them to compare and contrast share management accounts, Stocks and Shares ISAs, and trading apps.

One income share to consider

At the moment I think it is the income segment that investors should consider Legal & General (LSE: LGEN).

At 8%, the yield is higher than what I mentioned above. The FTSE 100 financial services company aims to increase its dividend each year, although in reality no return is ever guaranteed.

The company has a large customer base. Its brand is strong and has extensive experience in its field. Focusing on retirement-linked products means it can tap into a large, long-term market.

A planned sale of a major US unit could mean future cash flows are tight, threatening profitability.

But on balance I see Legal & General as a well-proven business with long-term potential to generate income.