Investing in a Shares and Shares ISA to create a passive revenue stream’s all effectively and good for individuals who have £20,000 a yr to take a position. However what in regards to the majority of us who can spare lots much less?

Properly, I don’t come near the ISA restrict annually, however I’ve nonetheless been utilizing them since they had been launched.

How a lot is £5 a day? It’s not lots after we take a look at the costs of issues lately. But even a modest sum like that provides up to £1,825 a yr (plus an additional fiver each bissextile year).

Shares to purchase

I won’t particularly pay £5 day-after-day into my ISA, though it could be completely possible to try this. No, I desire to switch some cash each month and let it construct that method. I’ll simply be certain that it involves at the least my each day £5 minimal.

However what is going to I really purchase? Over the a long time, I’ve largely gone for FTSE 100 shares that pay dividends. And I see no motive to vary that.

So let’s check out one I purchased a couple of years in the past, Aviva (LSE: AV.). The insurance coverage big at present gives a forecast dividend yield of seven.5%, predicted to rise.

Purchase what I do know

I believe it’s vital to grasp the place the money for my dividends comes from. In any other case, I’d actually simply be guessing and playing.

With Aviva, that’s life, accident and every kind of common insurance coverage protection. And financial savings, pensions and funding providers. These are companies that may generate sturdy money circulate.

However wait, isn’t insurance coverage dangerous? Properly, sure, some years insurers do must pay out large sums. And monetary providers can have unhealthy years.

It’s additionally very aggressive, and the Aviva share price has carried out poorly up to now decade.

Compound dividends

However I nonetheless like the concept of my dividends compounding up over time. They’re not assured, and I anticipate to see decrease yields from insurance coverage shares some years.

However 7.5% of £1,825 is £137 in a yr (bar a few cents). It won’t sound like lots, but it surely’s higher than the £95 I might get from at present’s best possible Money ISAs. And, although they’re assured, Money ISA charges must fall in response to Financial institution of England cuts.

Nonetheless, I don’t need the revenue but, so I’d plough it again in with subsequent yr’s money. Subsequent yr, I ought to begin with £1,962 from which to earn 7.5% (along with subsequent yr’s £1,825), and so forth. In truth, forecasts put the Aviva dividend yield at 8.4% in 2025.

Unfold the money

Aviva’s only one instance, however it could be method too dangerous to place all my eggs within the insurance coverage basket. I knew somebody who had all their cash in financial institution shares simply earlier than the monetary crash. That wasn’t good.

In actuality, I’d diversify throughout dividend shares from a variety of sectors. There are fairly a couple of respectable FTSE 100 dividends to select from.