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Making passive income that beats the State Pension may sound like a fanciful goal. However, investing money inta range of high-quality UK shares can produce impressive results over the long run. And even as the FTSE 100 reaches new record highs, there continues to be plenty of promising opportunities that might help investors along the path towards financial freedom.
The power of £50
Over the last 30 years, the average return generated by the stock market has landed close to 8%. Since the chaos of the pandemic, that growth rate has accelerated closer to 11% demonstrating the extra gains that can be unlocked when investing during a market downturn.
But let’s assume a portfolio earns the lower 8%, investing £50 a week at this rate can lead to impressive results when left to run for several decades. In fact, after 30 years, this relatively small lump sum could grow into £323,720. And for those willing to wait a full four decades, a portfolio would reach an even more impressive £758,290.
Following the 4% withdrawal rule, that means long-term investors could reap a retirement income of anywhere between £12,948 all the way to £30,332, both firmly ahead of the roughly £12,000 offered by the State Pension today (but probably not ahead of the pension by 2055).
Taking a step back
Earning a near-10% return sounds simple on paper. But in practice, it requires a bit of skill and nuance. That’s because not all stocks end up building wealth. And there are plenty of examples of promising-looking enterprises falling short of expectations.
Take Vodafone (LSE:VOD) for example. The telecommunications giant sits comfortably within the FTSE 100 and remains a popular choice among British investors. And yet over the last two decades, it’s vastly underperformed.
Aggressive infrastructure expansion was expected to deliver rapid growth, particularly across the UK and Europe. As such, older management teams were more than happy to load up the balance sheet with enormous volumes of debt, especially during the near-zero interest rate environment following the 2008 financial crisis.
Yet that growth never seemed to materialise as capital-light competitors swooped into the market and lured customers away with cheaper offerings. The consequence, in the last 20 years, instead of delivering robust shareholder returns, the stock’s down almost 40%. Needless to say, that’s the opposite of what investors need to retire in style.
Still some hope?
The competitive landscape surrounding Vodafone remains as intense as ever in 2025. And the group still has enormous outstanding borrowings to tackle. Yet under the newish stewardship of Margherita Della Valle, the business has started showing signs of a comeback.
The disposal of underperforming divisions has raised some capital to pay off large chunks of debt. At the same time, its core German, UK, and African operations are being streamlined to boost operational efficiency, allowing free cash flow margins to steadily expand.
It’s still early days, so I’m still staying on the sidelines for now. But these moves could potentially signal the start of a long-awaited recovery that might open the door to higher returns. And if the strategy is successful, Vodafone could prove worthy of a closer look from investors comfortable with taking on a bit of risk.
