Retirement can seem a long way off for many people. A financially savvy worker can turn that long-term timeframe to their advantage and start investing sooner rather than later to help fund their retirement.
For example, if a 40-year-old started today by investing £100 each week in carefully chosen blue-chip shares, I reckon they could grow their wealth and potentially retire early .
Regular saving can help build a sizeable retirement fund
Of course, starting at 30 would be even better than starting at 40 – and at 20 would be even better than at 30!
Unfortunately, though, many of us do not realise that (or have other spending priorities) until it is too late. Even at 40, fortunately, an investor could still make a big difference to their retirement fund if they start investing immediately.
Putting £100 per week into a Stocks and Shares ISA or SIPP and compounding it at 10% annually, after 25 years the investor will have a retirement fund of close to £535k.
That could help them draw an income (for example, via dividends) and retire earlier than otherwise .
Building a quality portfolio of great shares
A goal of 10% might not sound too challenging. After all, FTSE 100 insurer Phoenix Group ( LSE: PHNX ) currently offers a dividend yield of 10.2% and has been a consistent dividend raiser in recent years. Some other blue-chip shares also offer high yields.
But there are several things to bear in mind. That compound annual growth rate includes good years as well as bad. It also includes capital gain (or loss), as well as dividends.
Phoenix has a generous dividend yield, but its share price has fallen 11% in the past five years.
On top of that, it is always important to diversify across different shares in case one of them disappoints. Over the decades between age 40 and retirement, that is much more likely to happen than it may seem to an investor when they first start investing!
But with the right approach and investing mindset , I think a 10% compound annual growth rate could be achievable.
One share to consider
In fact, I do still think Phoenix is a share to consider for its long-term potential.
The insurance sector is extensive and doesn’t seem poised for significant shrinkage anytime soon, as far as I can tell. Given its approximately 12 million clients and near £300 billion in volume, Phoenix operates a massive enterprise capable of producing substantial surplus funds. This financial cushion is beneficial when supporting sizeable dividend payouts.
All stocks come with risks, including Phoenix. One aspect is their portfolio of mortgages, which relies on specific valuation assumptions. Should a downturn in the property market lead to significant drops in prices, these assumptions might prove insufficient. This could force Phoenix to reassess the value of its mortgage book, potentially reducing profit margins.
Looking ahead over the longer term, however, I believe the established enterprise still holds considerable promise.
The post For someone who is 40 years old aiming to retire early, here’s how they might begin by investing £100 each week. appeared first on The Motley Fool UK .
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C Ruane does not hold any positions in the shares mentioned. The Motley Fool UK also has no stake in these shares. Opinions regarding the companies discussed in this piece belong to the author and might diverge from the formal recommendations provided through our service offerings like Share Advisor, Hidden Winners, and Pro. At The Motley Fool, we feel that evaluating multiple perspectives contributes significantly to making well-informed decisions. us better investors.