Image Source: Getty Images
Retirement seems like a long way to go for many. Financially savvy workers can turn their long-term time frame into profits and start investing later and earlier to fund their retirement.
For example, if a 40-year-old starts today by investing £100 a week in a carefully selected blue chip share, I think they could develop wealth and retire early.
Regular savings can help you build a substantial retirement fund
Of course, starting at 30 is even better than starting at 40. 20 is even better than 30.
Unfortunately, many of us don’t realize it until it’s too late (or have other spending priorities). Fortunately, even at age 40, investors can make a huge difference to their retirement funds if they start investing right away.
In 25 years, investors will have a retirement fund of nearly £535,000.
It helps them to extract income (for example via dividends) and allows them to quit earlier than others.
Build a quality portfolio of excellent stocks
A 10% goal may not be so challenging. After all, FTSE 100 Insurance Company Phoenix group (LSE: PHNX) currently offers a dividend yield of 10.2%, making it a consistent dividend laser in recent years. Several other blue chip shares also offer high yields.
However, there are a few things to keep in mind. That combined annual growth rate includes bad years and bad years. It also includes capital gains (or losses) and dividends.
Phoenix has a generous dividend yield, but its stock has fallen 11% over the past five years.
Plus, it’s always important to diversify across different stocks if one of them is disappointed. Over the decades between age 40 and retirement, it could be much higher than what investors would think when they first began investing!
However, I think that with a good approach and investment mindset, a combined annual growth rate of 10% can be achieved.
One share to consider
In fact, I still think Phoenix is the share to consider for its long-term potential.
The insurance market is huge and I don’t think it’s likely to be much smaller anytime soon. With around 12 million customers and nearly £300 million, Phoenix has a huge business that has proven to be able to generate a large amount of spare cash. It helps when it comes to funding these thick dividends.
All stocks, including Phoenix, are at risk. For example, there are mortgage books that contain specific valuation assumptions. If prices fall sufficiently in a slump in the real estate market, these assumptions can prove to be insufficient. That means Phoenix may need to reevaluate the book and hurt its profits.
However, from a long-term perspective, I believe that proven businesses continue to have strong potential.