The stock market has been incredibly volatile in 2025. As a result of tariff uncertainty and recession fears, many shares have fallen 20% or more.

For a long-term investor like myself, this kind of market turbulence can create amazing buying opportunities. With that in mind, here are three shares I’ve been buying for my portfolio recently.

Amazon

A few months ago, I sold a little bit of my Amazon (NASDAQ: AMZN) holding when the stock was near $240 (mainly because my holding was very large). I’m not a buy-quick, sell-quick investor but with the share price now under $200, I’m a buyer again.

Amazon strikes me as a company with immense potential. Not only does it stand to benefit from the continued growth of online shopping (where it now has over 200m Prime members), but it also stands to benefit from the growth of cloud computing, artificial intelligence, robotics, video streaming, digital advertising, and digital healthcare.

At or below $200, Amazon stock looks a steal to me. With analysts expecting earnings per share (EPS) of $7.58 next year, the forward-looking price-to-earnings (P/E) ratio is under 26 at a share price of $200 – that’s a historical low.

Of course, a major global recession could temporarily halt the growth story here. Taking a long-term view though, I’m really excited about the potential.

Uber

Another stock I’m really excited about is Uber (NYSE: UBER). I’ve been snapping up more shares while the share price is below $80.

Like Amazon, this company has many ways to win. Today, it operates the largest ride-sharing network in the world (170m users worldwide). But it’s also having success with food delivery, digital advertising, and plane/train/boat bookings. Over time, it’s slowly becoming a travel ‘super app’.

It’s worth pointing out that in the long run, Uber could potentially be a major player in the self-driving car space. This is one reason I’ve been investing. For companies with self-driving technology, its user base could be very valuable. I think it could end up being a demand aggregator.

Of course, Tesla’s technology is a risk here – it has big plans in the autonomous vehicle front. With the stock trading on a forward-looking P/E ratio of just 21 (using the 2026 earnings forecast), however, I like the risk-reward set-up.

CrowdStrike

The third stock I want to highlight today is CrowdStrike (NASDAQ: CRWD). It’s one of the world’s leading players in the cybersecurity market.

I’ve been buying while the stock has been under $350. There are a few reasons why.

One is that the cybersecurity industry is projected to experience substantial growth over the next decade as the world becomes more digital. According to McKinsey, we could be looking at a $2trn industry in the future.

Another is that cybersecurity spending is relatively recession-proof. In an economic downturn, companies can slash marketing or advertising spending, but they’re not going to reduce cybersecurity spending – the risks are too high.

Now, this stock is higher-risk. Today, earnings are still small so the valuation is high (which means high share price volatility).

Meanwhile, cybercrime is dynamic in nature. So, there are no guarantees that the company will continue to have success.

This company has a strong long-term growth track record though. So, I’m backing it to do well over the next five years.

The total dividend yield from HSBC (LSE: HSBA) shares in 2024 is currently 7.6%. This is based on regular dividend payments of 66 cents (51p) plus a special dividend award of 21 cents, totalling 87 cents.

Without the special dividend included, the yield is 5.8%, and analysts forecast this will stay the same in 2025.

I have long held shares in the bank for two key reasons. First, I expect its share price to keep rising due to what I believe is a major undervaluation of the stock.

And second, I receive significant passive income from the relatively high yield it generates. This is money made with little effort on my part, most notably in my view from share dividends.

How much passive income could be made?

A common misconception about investing is that a lot of money is needed to start the ball rolling. This is not true at all, as even £5 a day saved and invested can produce extraordinary returns over time.

This amount (equating to £150 a month) invested in HSBC at 5.8% would generate £6,434 of dividends after 10 years. On the same average yield, these dividends would increase to £91,736 after 30 years.

Adding in the deposits made over the period and the total holding would be worth £145,735 by then. And this would pay £8,453 a year in passive income from HSBC dividends by that point.

That said, it is important to know that these figures are based on the dividends being reinvested into the stock each year. This is a standard investment practice known as ‘dividend compounding’. It has a multiplier effect on the value of the dividends like that seen with interest left to accrue in a bank account.

It should also be noted that yields can change, depending on moves in the share price and annual dividend amounts.

In HSBC’s case, analysts forecast the dividend will rise to a sterling equivalent of 55.2p in 2026 and to 60.2p in 2027. These would give respective yields of 6.2% and 6.8% over those years, based on the current £8.82 share price.

Is the potential share price bonus still in play too?

HSBC shares continue to look extremely undervalued to me. This increases the chance of making a profit on the share price if I ever sell them.

More specifically, a discounted cash flow analysis shows the stock is 46% under its fair value at its current £8.85.

Therefore, the fair value for the shares is £16.33, although market forces could move them lower or higher.

A risk to this valuation is declining interest rates in its key markets.

However, the bank has increasingly substituted fee-based for interest-based business. And its 2024 results saw profit before tax rise 6.5% year on year to $32.309bn. This outstripped analysts’ forecasts of $31.67bn.

I am extremely happy with my HSBC holding, which I bought at an average price below its current level. However, even if I did not have this I would have no hesitation in buying the stock now, given its high yield and significant undervaluation to its fair value.

The Rolls-Royce (LSE: RR) share price has just kept rising and rising (and rising). Its success has been agony for investors who sat on the sidelines, waiting for a dip.

Over the last three years, Rolls-Royce shares rocketed a scarcely believable 695%. Over two years, they’re up 423%. In the last year, 83%. And in the past three months? Another 37%.

Much of this comes down to the remarkable turnaround engineered by CEO Tufan Erginbilgic, who has restored belief and reignited growth. But what’s this? In the last week, the Rolls-Royce share price has dropped 2.79%.

Is this now a FTSE 100 bargain?

That’s hardly a game-changer obviously, given the extraordinary gains we’ve seen. And it’s not exactly surprising either, given the stock market volatility caused by Donald Trump’s tariff threats. Investors will have hoped for a bigger dip to buy into, but is this all they’re going to get?

The first thing to say is that second-guessing share prices is a dangerous game. I’ve no idea what will happen next. Nobody does. 

Rolls-Royce is slightly cheaper than it was, but only marginally. Its price-to-earnings (P/E) ratio has slipped from around 43 times to 38. That’s still far above the FTSE 100 average of around 15 times though, meaning investors are pricing in a lot of future growth. If Rolls-Royce falls short, the share price could suffer more than just a dip.

There are reasons why Rolls-Royce shares could rise further. The business is investing heavily in small modular reactors (SMRs), or mini-nukes, which could revolutionise nuclear energy by making it cheaper and easier to deploy. 

If governments, particularly in the UK, throw their weight behind the technology, this could open up a whole new revenue stream. But SMRs remain unproven, and there’s no guarantee of widespread adoption.

Global air travel’s booming again, and Rolls-Royce makes much of its money from servicing aircraft engines. The more miles flown, the more cash rolls in. But tariffs could send that into reverse.

Growth’s likely to slow

With tensions high in Ukraine and the Middle East, European nations are ramping up defence budgets. Rolls-Royce, which supplies military engines and other critical components, is well placed to benefit. But if Trump and Vladimir Putin deliver some kind of peace deal, cash-strapped European governments may rethink their plans.

Then there’s those tariffs. Rolls-Royce is fighting back by ramping up production at its US plants, which may mitigate the impact. But that will cost. Will it appease Trump? Nobody knows.

The 16 analysts covering Rolls-Royce have produced an average one-year share price target of 788p. That’s up just 4% from today’s 758p. Forecasts can’t be relied upon, but it suggests that after its enormous rally, the Rolls-Royce share price bonanza will slow. Given the uncertain geopolitical and economic backdrop, I wouldn’t be surprised.

But then, I don’t know. Nobody does. Investors buying Rolls-Royce shares today must accept the stellar gains are most likely gone. But with a long-term view, this rejuvenated British engineering hero’s still well worth considering, dip or not.

In general, I’m staying away from UK housebuilders at the moment. But I’m starting to wonder whether I should make an exception for FTSE 250 company Vistry (LSE:VTY). 

The company had some big problems that are all of its own making recently. If those are in the past though, the current share price could represent an outstanding buying opportunity. 

Risks

There are obvious reasons to be interested in the UK housebuilding sector at the moment. A long-term imbalance between supply and demand means prices should remain resilient over time.

Adding to this is a short-term focus on building from the government – reiterated in the Spring Statement – makes an attractive combination for investors. But there are some important risks.

One is that Vistry (along with other UK builders) is being investigated by the Competition and Markets Authority for collusion. That’s a big issue and it’s why I’ve been avoiding the industry.

It’s almost impossible to know what the outcome will be and that’s a problem. But at the right price, the risk could be worth it – and the stock has fallen a long way from its 52-week highs.

Time for a turnaround?

Vistry’s big problem recently has been cost irregularities in its South Division. These resulted in a big hit to the firm’s financial performance, with pre-tax profits down 35% in 2024.

The company has conducted a thorough review of all of its divisions as a result and it hasn’t found any further irregularities. And if the problem’s solved, the stock could be a bargain.

Before the issues, Vistry had committed to returning £1bn to investors over the next three years. That’s more than 50% of the company’s current market value. I can’t think of another stock that I’m expecting this kind of return from over that timeframe. And over the longer term, the firm’s differentiated business model looks attractive. 

Differentiation

Unlike other builders, a lot of Vistry’s projects are ‘Partner Funded’. This means the costs are shared by organisations like housing associations and local authorities. 

There are three main benefits to this. The first is it reduces the firm’s reliance on selling via the open market, reducing the risk of higher interest rates weighing on mortgage affordability.

The second is it that it allows Vistry to undertake more projects using less of its own capital. This makes it less dependent on debt and allows it to return more cash to shareholders.

The third is it means the company should be well-positioned to benefit from government initiatives to boost affordable houses. Increased investment in this area should mean partners have more funds available.

Risks and rewards

Vistry’s approach of using its expertise to generate returns (rather than its balance sheet) is an attractive business model for the long term. And I think investors should certainly take a look at the stock.

There’s a big risk that can’t be ignored, but a potential 50% return over the next three years might be enough to justify buying it at today’s prices. I’m very much undecided in my own portfolio.

So far, that uncertainty has been enough to keep me on the sidelines. But I’ll be watching closely for updates on the investigation and positive news in this regard could well be my cue to start buying.

After what looked like the start of a recovery in March, the S&P 500 fell a further 3.4% last week. As of 2 April 2025, America’s most widely followed stock market index is down 4% year to date and 511 points from its all-time high set in mid-February.

As the Trump administration’s tariff policies continue to rock markets, investors are shifting capital into cash and safe-haven assets. This is putting pressure on US stocks, with big names like Tesla and Moderna down over 30% this year.

One of the world’s most famous investors appears to have pre-empted this occurrence. Warren Buffett’s investment firm, Berkshire Hathaway, has been stockpiling cash for several months now.

While the ‘Oracle of Omaha’ hasn’t specified the reasons behind the move, it certainly appears to have been a good one.

Now with over $330bn in cash on its balance sheet, it’s well-positioned to benefit from low prices before a rebound.

What can investors learn from this strategy?

Words of wisdom

Buffett is known for his many wise words when it comes to finance. Quotes of his are used liberally by writers and lecturers and have become canon in the world of investing.

Recent events seem to mimic one of his most famous lines: “Be fearful when others are greedy and greedy when others are fearful“.

After Covid, the S&P 500 bounced back spectacularly, climbing almost 90%. When it dipped again in 2022, he went on a $34bn shopping spree. In the following two years, it gained over 55%. But as people got greedy last year, Buffett started selling.

Many analysts expect the S&P 500 to fall further this year before bouncing back. So there could be a lot of opportunities in the coming months for value investors to consider low-cost shares.

But which ones?

Top US tech firms are among the hardest hit by tariffs, yet the vast majority of them still hold significant value. This means the sector could enjoy a notable rebound later this year once tariff costs are priced in.

For UK investors, an investment fund like Scottish Mortgage (LSE: SMT) provides broad exposure to this industry. It’s one of the UK’s most well-known and widely held investment trusts.

Its portfolio includes top tech stocks like Spotify, Meta, and Nvidia along with a diverse mix of e-commerce, healthcare, and decarbonisation stocks. 

The trust has an ongoing charge of 0.34%, which is lower than most similar trusts.

For the past three years, it’s traded at a discount to net asset value (NAV), meaning the stock is cheaper than the combined value of its assets. It’s currently at 9.29%, so investors can gain exposure to the same assets for almost 10% less than buying them each individually.

On the flip side, this discount suggests investors aren’t 100% confident in the fund’s management and aren’t prepared to pay full price. Unless this changes, potential gains may be less than those of the individual stocks once it rebounds.

Be that as it may, it’s still a potentially attractive opportunity for investors to consider, in my opinion. And it’s not the only one. The UK stock market hosts a wealth of US-focused funds that provide exposure to companies with promising growth prospects. Other examples include Polar Capital Technology Trust and Baillie Gifford US Growth Trust.

Lloyds (LSE:LLOY) shares have defied the naysayers over the past 12 months. Once seemingly weighed down by a Jupiter-like gravity, the bank simply didn’t deliver for its shareholders in the years immediately after the pandemic.

Now, some investors may now be looking up to the £1 mark. That’s still 38% above the current share price, but 12-month price targets cluster between 70p and 90p. This suggests some near-term potential. However, achieving triple-digit valuation demands sustained earnings growth and multiple expansion.

What the numbers tell us

The bank’s forward price-to-earnings (P/E) ratio of 10.7 times may seem high, but likely reflects near-term impairments. Looking forward, current forecasts suggest earnings per share (EPS) could reach 10.67p by 2027, resulting in a forward P/E of 6.5 times. At today’s multiples, this 2027 EPS would imply a share price above £1, but that’s not a perfect comparison given the distorted nature of the 2025 forecast.

Given that Lloyds and other UK banks typically trade at a discount to their US and international peers, comparative data suggests Lloyds will need to demonstrate continued earnings growth beyond 2027 in order to achieve a three-digit share price. What makes me think that? Well, global banking benchmark JPMorgan is trading at 11 times projected earnings for 2027. At best, Lloyds will trade with a 25% discount to JPMorgan despite its very attractive dividend yield.

Catalyst watch

Several catalysts could accelerate progress. Morgan Stanley‘s upgraded 90p target highlights potential from the structural hedge delivering £1.2bn income boost in 2025 and 9% net interest income growth in 2026. Successful execution on non-interest income streams (insurance, wealth management) could also drive multiple rerating.

What’s more, Lloyds looks cheap compared to the value of its assets. The shares trade at 0.86 times forward price-to-book value, suggesting room for revaluation if return on equity improves from the current 9.6%.

However, the motor finance overhang remains critical. While Lloyds has provisioned £1.2bn, RBC Capital‘s £3.2bn worst-case estimate and the impending Supreme Court ruling on commission structures create uncertainty. A favourable judicial outcome in April 2025 could remove this drag, while adverse rulings might necessitate further provisions. It still represents a risk for investors.

Long-term investors might find encouragement in the dividend forecast. The forward yield stands at 4.7%, but this is forecasted to hit 6.4% in 2027. Given earnings projections, this dividend would still be covered 2.3 times by earnings. That’s a strong and sustainable ratio that should afford Lloyds something of a premium.

It’s not off the cards

In addition to the above, the bank’s digital transformation and cost-cutting initiatives could drive operating leverage as loan growth recovers. However, for shares to sustainably breach £1, markets would need confidence in sustained mid-single-digit revenue growth, contained credit losses, and successful resolution of legacy issues.

While not imminent, disciplined execution against these objectives could make the £1 milestone achievable within this decade. And like other investors, I’m still cautious that sentiment could shift against this bank… again. Nonetheless, I’m holding onto my Lloyds shares and don’t expect to buy more in the near term.

Generally, a stock-market crash is a drop of 20%+ from a recent peak. Similarly, a correction is a fall of 10%+, but under 20%. Currently, the S&P 500 index is nearing a correction, but the Nasdaq Composite is close to a crash.

US stocks tank

Bad news for global investors: US stocks just had their worst quarter since autumn 2022. In Q1 of 2025, the S&P 500 dipped 4.6%, while the Nasdaq Composite index — dominated by ‘Big Tech’ stocks — dived by 10.4%.

Furthermore, from its record of 6,147.43 on 19 February, the S&P 500 has lost 8.3%. However, the tech index has fared worse, plunging 13.5% from its high of 20,204.58 on 16 December 2024.

From magnificent to malingering

One reason for the big fall in the US tech index is the outsized influence the ‘Magnificent Seven’ shares have on the US market. Here are these Goliaths, showing price falls from their record highs (table sorted by market value, largest to smallest):

Magnificent Seven stock	Current share price	Record high	Decline	Market value
Apple	$224.21	$260.09	-13.8%	$3.37trn
Microsoft Corp	$381.64	$468.35	-18.5%	$2.83trn
NVIDIA Corp	$109.17	$153.13	-28.7%	$2.66trn
Amazon.com	$191.98	$242.52	-20.8%	$2.04trn
Alphabet	$158.51	$208.70	-24.0%	$1.92trn
Meta Platforms	$585.26	$740.89	-21.0%	$1.48trn
Tesla	$266.12	$488.54	-45.5%	$822.5bn

These seven mega-tech stocks have lost between 13.8% and 45.5% since their individual highs. Worst hit is NVIDIA Corp, whose near-30% drop has erased $1.07trn of investors’ wealth.

In percentage terms, the worst of the Magnificent Seven is Elon Musk’s Tesla, whose stock has almost halved from its pre-Christmas peak. This is something I predicted would happen, given this share’s astonishing rise after Donald Trump’s re-election on 5 November. Even so, Tesla shares are up 9.5% since closing on 4 November — but what a roller-coaster ride they’ve ridden.

Also, the combined loss of value from these seven stocks since their respective highs totals $4.48trn — more than the entire UK stock market is worth. Whoa.

Silicon heaven?

For the record, my wife and I own four of these Mag 7 stocks, namely Apple, Alphabet (owner of Google), Amazon.com, and Microsoft Corp. We bought into these tech Titans during the lows of early November 2022, just before all four surged in value.

Reviewing the Magnificent Seven today, one stock in particular seems to me to offer compelling value. (Of course, it remains to be seen whether other investors agree with me.) This ‘Silicon value’ share is Alphabet, a near-$2trn giant whose shares trade on below 20.5 times trailing earnings.

Notably, Alphabet’s modest dividend yield of 0.5% a year is covered 9.6 times by earnings. This leaves tons of spare cash to invest in the latest technology, including artificial intelligence.

For me, Alphabet stock offers the most attractive Mag 7 risk-reward ratio for value-seeking investors like me. However, there is one huge fly in the ointment: the legal ruling that Google enjoys an illegal monopoly in online search and advertising. The big question is whether this will lead to huge fines — or even a break-up of Alphabet — in Trump’s pro-business presidential term.

As for me and my wife, we intend to hold on tightly to our Alphabet stock. Indeed, we may even buy more in the forthcoming 2025/26 tax year!

International Consolidated Airlines’ (LSE:IAG) shares are now up 45% over 12 months. That might sound good, but the stock’s actually pulled back significantly from its highs.

What’s more, analysts’ target prices have continued to grow, with the average share price target now being 47% above the price, at the time of writing — 260p. Is this an unmissable opportunity to buy?

What’s behind the pullback?

IAG shares have pulled back recently due to a combination of operational disruptions and broader economic concerns. The closure of Heathrow Airport on 21 March, caused by a fire at a nearby electrical substation, led to significant flight cancellations and disruptions.

British Airways, IAG’s flagship carrier, was particularly affected, with analysts estimating the financial impact could reduce the group’s earnings by 1-3% this year. This incident highlighted IAG’s reliance on Heathrow as its primary hub.

Additionally, economic uncertainty has weighed heavily on the airline sector. Rising fears of a recession in key markets like the US and UK have dampened demand for transatlantic travel, which is crucial for IAG.

North Atlantic routes accounted for nearly 31% of its capacity in 2024. And weakening US demand has raised concerns about future revenue growth. Political and cultural shifts affecting inbound US tourism have further exacerbated these challenges.

While IAG’s benefitted from the post-pandemic recovery and disciplined cost management, these recent trends have overshadowed its strong financial performance in 2024. The combination of operational setbacks and macroeconomic pressures has driven the recent decline in its share price.

Analysts are still very bullish

Analysts remain bullish on IAG shares despite recent volatility. The mean consensus among 17 analysts is an Outperform rating, reflecting confidence in the stock’s potential to deliver returns above market averages.

The average 12-month price target stands at £3.97, representing a 47.8% upside from the last closing price. Optimistic forecasts go as high as £5.27, nearly doubling the current share price, while the lowest target of £1.77 still implies significant divergence in opinion.

However, this broad optimism is supported by IAG’s strong financial performance, strategic capacity management, and robust transatlantic travel demand, which continue to underpin its growth prospects.

Looking beyond 2025

Analysts are always trying to anticipate where a business will be in the future. Things might look a little more challenging now, but there are long-term supportive trends. These include resilient post-pandemic demand for leisure travel and Trump’s desire to keep fuel prices low throughout his presidency.

That latter point is particularly important as fuel costs represent 25% of operating costs. Incidentally, jet fuel prices are currently the lowest they’ve been since Russia’s war in Ukraine.

So while there are near-term risks, namely Trump’s tariff impact and the earnings impact of the Heathrow shutdown, the long-term picture’s fairly bright. And at five times earnings, it’s cheap.

Not as cheap as my sector favourite, Jet2 which trades a 1.1 EV-to-EBITDA, but it’s still attractive. If I wasn’t building my position in Jet2, I’d buy more IAG at the current price. It looks like a good entry point to consider.

Are you sitting on some unspent Stocks and Shares ISA allowance for this tax year? Any allowance unused before the end of 5 April can’t be carried over to 2025/26. So it may be worth using up as much of that £20k yearly allowance as possible before it’s too late.

Investors don’t have to actually purchase any shares, trusts or funds before the deadline to shelter their money from tax. But given the cheapness of many London Stock Exchange-listed assets, it may be a mistake to delay.

With this in mind, here are two top FTSE 100 and FTSE 250 bargain shares I think investors should consider today.

Greggs

Not even its focus on value foods and treats has saved Greggs‘ (LSE:GRG) bacon in recent times. Sales have slowed considerably in recent times, and remain in danger of further weakness in the current economic climate.

Yet I believe the cheapness of its shares makes it worth a close look. Its forward price-to-earnings (P/E) ratio of 13.1 times sits comfortably below the company’s five-year average of 20.8 times.

Many of the long-term drivers that pushed its market-cap from £1bn in 2015 to £1.8bn today remain in place. Most critically, further store additions to supercharge sales are in the works, with up to another 150 planned this year alone as the baker moves closer to its 3,000 outlet target.

There’s also much more room for growth in the white-hot delivery segment. Sales from this channel increased 30.6% year on year in 2024 as the company extended the service to 1,556 outlets.

With Greggs saying this month it enjoyed “improved trading in February“, investing in the FTSE 250 firm before the next market update on 20 May could be a good idea to consider. Though there’s no guarantee that sales haven’t deteriorated again following last month’s uptick.

Ashtead Group

Like Greggs, rental equipment supplier Ashtead Group (LSE:AHT) also looks cheap from an historical perspective. Its prospective P/E ratio is 15.7 times, some way under the five-year average of 21.1 times.

There’s good reasons why the company — which operates under the Sunbelt brand — now commands a much cheaper valuation. Weak construction markets in the US and Canada have seen it sharply downgrade near-term sales and profits forecasts. They could continue to deteriorate too as the threat of crushing trade tariffs hits North American economies.

But there’s also plenty to remain optimistic about. The FTSE 100 company stands to benefit greatly from a series of mega Stateside infrastructure projects planned over the next decade. It could also gain from significant onshoring in the US and Canada if trade wars intensify.

Ashtead’s rolling expansion drive puts it in great shape to exploit its positive long-term market outlook too. The firm’s market share in the US is 11% today, up from 6% a decade ago. But there’s substantial room to increase this through organic investment and acquisitions in what is a highly fragmented marketplace.

I’m still in my early 30s, but I want to have the option to take a second income from my investments in a decade. I may choose to delay the taking of that second income, but I want to have that choice. After all, that’s why many of us invest. To give us more options in the future.

Still aiming for growth

My primary aim is to grow my portfolio. And in recent years this has involved a focus on US technology stocks. Companies like AppLovin and Celestica helped my portfolio almost double in value in 2024. Meanwhile, my UK holdings Barclays, Lloyds (LSE:LLOY), IAG, and Rolls-Royce vastly outperformed their peers. Admittedly, 2025 has been less auspicious so far. Nonetheless, undervalued stocks, often with strong momentum indicators, are those that I’m leaning on to grow my portfolio over the next decade.

As a rule of thumb, a portfolio growing at 7% will double in 10 years if no further money is added to it. And a portfolio growing at 10% will double in value every seven years. Realistically, will my portfolio be large enough to generate a life-changing second income in 10 years? I’m not sure. However, as a rough guide, I believe £500,000 would be enough to generate £25,000 annually. And with a 5% yield, there’s no need to take from the balance of the portfolio.

Switch to income stocks

If I do start taking a second income from my portfolio in 2035, I’ll likely shift my focus from growth-oriented companies to dividend-paying stocks and bonds. That would mean receiving a regular income in the form of dividends rather than potentially selling positions in growth-oriented stocks to deliver a second income. Government bonds, such as Gilts and US Treasuries, are typically considered among the safest forms of income. However, they rarely yield as much as they do today.

One effective strategy for building a second income in the future is to invest in companies with a strong track record of growing their dividends. Over time, consistent dividend growth can significantly increase the yield on the original investment, potentially reaching double digits within a decade. This approach combines rising income with capital appreciation, offering both stability and long-term financial growth. For example, Warren Buffett’s initial investments in Coca-Cola (NYSE:KO) now yield around 60%.

A dividend grower of my own

The Lloyds dividend is still appealing even after the stock recent rise. The forward yield is estimated to be 4.7%, which is still above the index average. However, analysts expect the dividend payment to grow from 6.7p per share in 2025 to 10.7p per share in 2027. This rate of growth may be unsustainable in the very long run, but it’s a good sign. In other words, buying the stock today would result in a 6.4% yield in 2027.

While there are short-term risks, including the ongoing motor finance case, in the longer run investors should consider that banks are typically cyclical. As such, there could be fluctuations in the dividend if the bank experiences a more challenging economic environment in five years or so. Personally, having already build a sizeable position in Lloyds, I’m not buying more right now.