Picture supply: Getty Photos
Ever considered retiring as a millionaire? The ravages of inflation means one million kilos doesn’t go so far as it used to – nevertheless it may nonetheless make for a way more snug retirement. One thing many individuals don’t realise is that this doesn’t require a lottery win or putting it large within the inventory market. Drip-feeding cash in to well-known FTSE 100 blue-chip shares over the long run may very well be sufficient by itself for somebody to construct a seven-figure portfolio.
Sluggish and regular over the long run
FTSE 100 shares usually are not essentially the greatest firms from an funding perspective.
Many are already giant and mature, which means their development prospects may very well be small or non-existent.
With 100 firms within the index, inevitably some will do poorly over time.
So, what’s the enchantment?
I see it as a query of balancing potential rewards with danger tolerance. Whereas the FTSE 100 will not be full of racy development choices, it does provide entry to sizeable, well-established companies that usually have confirmed business fashions and endurance.
Over time, that may be a rewarding set of firms by which to speculate.
Investing for the many years to return
For instance, think about somebody places £500 monthly right into a Shares and Shares ISA and compounds it at 5% yearly.
After 41 years, the ISA can be value over £1m. Sure, that may be a long-term timeframe – nevertheless it implies that for below £20 a day, any person may realistically goal for one million.
Is a 6% compound annual development charge reasonable for a diversified cross-section of FTSE 100 shares (or, say, an index tracker)?
I believe so. For the time being, the index yields round 3.1% from dividends, and I reckon an extra compound annual acquire of three% or so in share worth over the long run is possible.
Constructing a hand-selected portfolio
As I discussed above, one method would merely be to ‘buy the index’ by investing in a tracker fund.
Personally I don’t try this, as an alternative preferring to try to select particular FTSE 100 shares that I believe have robust long-term potential.
After all, even good companies can undergo unhealthy patches, so moderately than plumping for a single such blue-chip share, I diversify my portfolio throughout a couple of totally different ones.
One share I reckon traders ought to think about proper now’s insurer Aviva (LSE: AV).
Interested by the longer term
With its 6.2% dividend yield, the FTSE 100 agency may probably meet the 6% goal I discussed above.
I say probably as a result of there are a few caveats.
Dividends are by no means assured at any firm. Certainly, Aviva minimize its payout sharply in 2020.
One other caveat is share worth acquire potential. Aviva’s share worth is up 56% in 5 years, barely beating the FTSE 100’s 51% acquire. However previous efficiency is just not essentially an indicator of what to anticipate in future.
Because the UK’s largest normal insurer, Aviva faces the chance that smaller rivals may attempt to construct market share by competing on worth, costing it both market share or profitability.
Nonetheless, that scale can be a bonus. The FTSE 100 firm is well-established, with deep insurance coverage experience and a big buyer base. I regard these as robust aggressive benefits.
