The phrase ‘passive income’ is bandied about a lot these days. There’s a good reason for that. Investors who build up a generous second income stream can look forward to a far more enjoyable retirement. You don’t have to be rich to do it either. Investing small, regular amounts can build life-changing sums over time. So what does it take in practice?

Assembling a balanced portfolio of FTSE 100 companies inside a Stocks and Shares ISA can really pay off over time. Top UK blue-chips don’t just offer potential share price growth, but dividend income too. Here’s how. Let’s say an investor puts away £7.77 a day, which works out at £2,835 a year. Then increases their contributions by 5% a year thereafter.

See how fast your money could grow

Next, let’s assume the portfolio delivers an average compound return of 8% a year over 30 years. After three decades, their pot could have grown to around £585,897. That shows how the stock market can really put your money to work.

If the investor draws 5% of that portfolio as annual retirement income, they’d get a pretty fabulous £29,295 a year, while leaving most of their capital to grow. All of that starting from just £7.77 a day.

Of course, there are no guarantees. The portfolio could return less than 8% a year, or it could return more. And inflation would make it worth less too. But my point stands. It shows how steady, consistent investing over decades can translate into a significant income later in life.

The next question is where to invest. The FTSE 100 has been volatile recently, due to Iran tensions. That’s also created opportunities, notably in the housebuilding sector, amid concerns that higher oil prices will drive up interest rates and mortgage costs, and hit housing demand, sales and prices. They may also drive up the cost of materials and threaten fragile supply chains.

Persimmon shares boast a bumper 5%+ yield

Persimmon (LSE: PSN) has taken a beating as a result. Its share price is down around 13% over the last year and roughly 65% over five. That’s not an outlier, other housebuilders are suffering too.

The Persimmon share price has begun to stabilise in recent weeks. It now trades on a modest forward price-to-earnings ratio of 10.9, while the trailing dividend yield looks tempting at 5.4%. Recent dividend history has been bumpy though. The board slashed payouts by 75% in 2022, and it’s been frozen at 60p per share since. However, forecasts suggest the forward yield will climb to 5.65% this year, then 6.2% in 2027. No guarantees of course. Dividends could be cut if conditions deteriorate.

I think Persimmon is still worth considering, but only with a long-term view. You should always balance any stock pick with a spread of shares across different sectors, offering both dividend income and growth. Never rely on a single industry or theme.

I can see plenty more brilliant bargains across the FTSE 100 today. Periods of uncertainty like today can create more attractive entry points for patient investors. And a higher potential passive income over time.