An ISA is a great way for UK investors to earn tax-free dividends. What’s more, capital gains also escape the clutches of HMRC. This win-win means it’s possible to build stock market wealth faster than using other types of investment accounts.

So how large does a Stocks and Shares ISA need to be to generate a monthly income of £500? And how long might it take? Let’s find out by crunching some numbers.

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Slow and steady

An income of £500 a month is equivalent to £6,000 a year. If someone followed the ‘4% rule’ and gradually withdrew the capital from their ISA, they would need to have a portfolio worth £150,000 to generate this amount.

And I reckon by investing little and often, it’s possible to get there over time. For example, £250 a month with an annual return of 8% will grow to £150,000 after approximately 21 years. Those in a position to afford more – say, £500 a month – could have an ISA worth £151,511 after 14 years. But this is still longer than the 10 years mentioned earlier.

Getting impatient

However, by adopting a stock-picking strategy, I believe it’s possible to achieve a better return. Of course, there are no guarantees and it’s important to have a diversified portfolio with a number of different shareholdings but, with some careful research, a healthy double-digit return could be unlocked.  

Take HSBC (LSE:HSBA) as an example.

Those who added the stock to their portfolios five years ago would now be laughing all the way to, er, the bank. That’s because, since March 2021, its share price has risen 227%, equivalent to nearly 27% a year.

With this level of return, a monthly investment of £500 would grow to around £150,000 within eight years.

And HSBC’s return of 227% ignores any benefit from reinvesting dividends that have been received. If these were used to buy more shares – a process known as compounding – the return would have been even more impressive.

Today (6 March), the stock’s yielding 4.3%, based on amounts declared for 2025. This is approximately one percentage point higher than the yield for the FTSE 100 as a whole.

Still worth considering?

When a stock’s been on a strong rally, it’s tempting to think that it’s too late to invest. But I don’t think this applies here.

Although the bank’s 2025 pre-tax profit was affected by some significant one-off factors, it comfortably beat the consensus forecast of analysts. And it’s now targeting a return on capital of at least 17% for the next three years. For context, it was 13.3% in 2025.

However, there are risks. With its global reach, the bank’s a bit of a barometer for the state of the world economy. Any weakness and its share price is likely to be affected. More specifically, it’s vulnerable to bad loans. Indeed, it’s suffered significant losses following the collapse of the Chinese property market.

But the bank has a strong balance sheet and instantly-recognisable global brand. It’s also geographically and operationally diversified. With its investment arm and wealth management division contributing alongside its bread-and-butter banking business, it doesn’t have all its eggs in one basket.   

On this basis, investors looking to implement a stock-picking strategy to help generate a healthy second income could consider adding HSBC to their portfolios.