How you can create a second income with the FTSE 100

Wouldn’t it be easier if you could make money while you sleep? It might sound too good to be true, but you can earn money in your sleep by investing sensibly.

And it doesn’t require any specialist knowledge or extreme risk-taking either. You can earn money 24 hours a day by putting your money to work in what is possibly one of the lowest-risk investments around.

I’m talking about the FTSE 100. I consider this to be one of the safest investments around because it protects you from some of the most significant risks investors face when trying to make money from the stock market.

The biggest risks

First of all, the FTSE 100 is an index comprised of 100 different stocks. These stocks are parts of some of the biggest companies in the world, so you don’t have to worry about the fortunes of any one individual business.

What’s more, because your money is spread across 100 different businesses, there is only a minimal risk that you will lose everything. Indeed, it is highly unlikely that 100 of the world’s largest companies will suddenly fail.

As well as an instantly diversified global portfolio, the Footsie 100 also gives investors access to a diversified global income stream.

At the time of writing, the average dividend yield on the index is approximately 3.7%, significantly more than the average interest rate available on most savings accounts today.

This dividend yield helps protect your money against one of the most significant risks investors and savers face today: The scourge of inflation.

The latest data show inflation in the UK is running at 2.7%. Even after the recent interest rate increase from the Bank of England, this means that the average saver is receiving a real interest rate of -1.95% every year. To put it another way, your money is losing 1.95% of its value every year.

Investing in the FTSE 100 will help offset inflation and support the purchasing power of your hard-earned money.

Simple is best

It might seem silly to suggest that the best way to invest your money is to buy a simple FTSE 100 tracker fund. But it is often the case that the simplest ideas are the best, and in this situation, I reckon if you want to earn money in your sleep with minimum effort and minimum risk, this is the best option.

One final point to consider is that due to the size of the FTSE 100, and its global exposure, you can buy a tracker for a relatively insignificant cost of 0.06% per annum. This means you get to keep more of your money and the good news is, fees are only falling so it is more than likely in the years ahead that the cost of implementing this strategy will decline.

At the same time, it is also likely company dividends will increase and that 3.7% average yield, will grow.

So, what’s not to like about this strategy? Earning money in your sleep has never been easier.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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