Investing in UK and US shares can be a great way to create wealth. After a few decades, the pool of money you have accumulated may (hopefully) be enough to provide you with bountiful and reliable passive income.

Here’s what I would do to get a second income over £20,000.

Eliminate the tax

The first thing on my list would be to open an Individual Savings Account (ISA) and/or a Personal Pension (SIPP). I actually utilize both of these products to assist me save on tax.

In the long run, these products could augment my wealth by tens of thousands of pounds, maybe more. This is because both the ISA and SIPP protect me from paying a penny in capital gains tax (CGT) and dividend tax.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Build a balanced portfolio

I have always strived for a well-rounded and diversified portfolio of different types of stocks. With this strategy, I can adjust my investments according to my risk and return preferences, not to mention ensuring a silky return over time.

To start, a recent investor might consider splitting their portfolio between growth and dividend stocks. I think 10-15 is a good number to aim for.

Greggs, Ashtead, AND Game workshops are examples of UK shares that investors may consider adding to their ISA or SIPP. Investors may also consider adding to fast-growing US technology stocks such as Nvidia, TeslaAND Amazon. While these types of growth stocks are sometimes volatile, they can result in significant long-term gains in share prices.

I think it makes sense to add some dividend stocks to them to have a steady stream of income to reinvest, allowing the gains to accumulate over time. Companies in this range include Aviva, HSBCAND Halma.

Passive income of over PLN 20,000 pounds

A quick and simple way to achieve this diversification may be to invest in an exchange-traded fund (ETF). The iShares FTSE 250 ETF (LSE:MEDIUM) is one such instrument that provides a good mix of growth and dividend stocks.

As the name suggests, it invests in the entire FTSE 250 index, weighted by market capitalization. This enables investors to effectively spread risk while providing a wide range of investment opportunities.

The fund’s largest holdings include financial service providers Witan AllianceGames Workshop hobby specialist and real estate investment fund Large Tritax box.

On the other hand, most of the index’s gains come from the UK, where economic conditions remain complex. Overall, I still believe the fund is still an attractive investment for long-term investors to consider.

Since 2004, the FTSE 250 fund has delivered an average annual return of 8.4%. Historical performance is not always a reliable indicator of future returns. However, if this happens, a monthly investment of £500 will turn into £507,618 within 25 years.

This vast pension pot could then provide a passive income of £20,305 at a 4% take-up rate. Add the state pension to this and it could provide you with a significant flow of cash to live on in retirement.