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Investing in the stock market’s a phenomenal way to start building a lifelong passive income stream. And when a high-quality portfolio is left to run for decades, it can eventually grow large enough to outright replace an investor’s primary income.
In 2025, the average median salary of a full-time worker is £37,430 a year, or £31,602 when including part-time employees. And after covering rent, food, and bills, the average person has around £226 left over at the end of each month. So how long will it take to transform these monthly savings into passive income that can replace a salary?
Crunching the numbers
Let’s start by setting some goals. If the objective is to generate a £37,430 income from dividend stocks, then at a 6% yield, this would require a roughly £624,000 portfolio. Six percentage is slightly higher than the stock market average, but there are plenty of dividend opportunities on the London Stock Exchange offering this level of payout. In fact, just across the FTSE 350, there are currently 50 shares with a 6%+ yield.
But rather than zooming in on dividend stocks straight away, the early years of building wealth might be better served by targeting top-notch growth stocks instead. While these often come with greater volatility, they also have more impressive growth potential. And in some instances, that’s translated into powerful double-digit returns that can relatively quickly transform a £226 monthly investment into £624,000.
Example of success
Since 2010, one of the biggest winners among UK shares has been Diploma (LSE:DPLM). Its dividend yield has never been anything spectacular to shout about. But the group’s ability to consistent generate free cash flow has provided management with ample financial flexibility. And those excesses have funded both organic and acquisitive growth that’s pushed its market -cap almost 1,900% higher.
On an annualised basis, that’s the equivalent of 22.1% total return. And anyone clever enough to spot this opportunity early on and invest £226 each month is just three years away from reaching their £624,000 goal. And providing that Diploma keeps on winning by 2028, they’ll be able to transition their portfolio towards high-yield stocks and enjoy a £37,430 passive income.
Still worth considering today?
In 2025, Diploma is now a £7.2bn enterprise. As such, its days of delivering 22% annualised returns are likely in the rear-view mirror. But that doesn’t mean it doesn’t have the potential to continue beating the market.
The value-add industrials distribution business continues to post impressive organic and acquisitive growth with chunky profit margins. The increasing complexity of global supply chains has served as a demand catalyst for its services, and with only a small percentage of market share captured, the group still has an impressive and resilient runway ahead.
Of course, like every investment, it’s not a risk-free endeavour. Acquisitions remain a central pillar of the group’s growth strategy, which can backfire. Even when taking a bolt-on approach, underperforming acquisitions saddle the balance sheet with unwanted debt, distract management, and put pressure on group profit margins.
Nevertheless, given the impressive track record, investors seeking to build wealth and passive income over the long run, may still want to give Diploma shares a closer look in 2025.
