Even if I had no savings at 30, I think I could still be a millionaire by the time I retire. By investing £1,000 each month in FTSE 100 stocks, I could grow my wealth to £1,000,000 by the time I’m 60.
In fact, there are a few different ways that I could aim for a million. I could either try to do it by looking for companies offering a 7% return today, or by companies that will grow over time.
Dividends
One way of trying to achieve a 7% return is by investing in stocks that pay dividends. If I can find a stock with a dividend yield above 7%, that can put me on track to reach my goal.
Right now, there are some FTSE 100 stocks that fit the bill. Legal & General currently has a dividend yield of 8.6% and Rio Tinto currently yields just over 9%.
With this approach, I’ll need to reinvest the dividends I receive into stocks that are offering 7% dividend returns. And as share prices move around, this might involve buying different stocks.
The biggest risk with this approach is that a company might pay out less in dividends in the future than it does today. If that happens, then I might start to fall short of my target.
To cover this risk, I’d look to do a couple of things. One is to invest in companies that are likely to maintain their dividends and the other is to spread my investment across a number of stocks.
Legal & General, for example, has increased its dividend steadily over the last decade. Even during the pandemic, its payouts to shareholders remained fairly stable.
Growth
The other way of aiming for 7% each year is by looking for companies that will grow. These businesses aren’t looking to pay out their earnings – they’re looking to reinvest it to make more.
In general, these companies aren’t offering a 7% return today. But the idea is that their earnings will grow over time and they will achieve that on average.
Croda International and Spirax-Sarco Engineering are both FTSE 100 stocks that have this profile. Neither offers a 7% return right now, but I think both have attractive prospects.
Right now, I think Croda stock offers a 1.42% return and Spirax-Sarco is around 1.83%. That’s well short of the 7% I’m aiming for on average, but with 30 years of investing ahead, time is on my side.
In order to achieve a 7% return on average, I’d need these businesses to grow their earnings at an average of 6% annually. And I think that’s well within what can be achieved.
Retiring as a millionaire
There are several ways I could be a millionaire in 30 years even if I start with no savings. The FTSE 100 has plenty of stocks that I think can help me achieve my aim.
The key to this approach is making sure that I invest that £1,000 every month. Over time, compounding my returns, I can get to £1,000,000 before I retire.
The post With no savings at 30, I’d invest £1,000 a month in FTSE 100 stocks to aim for a million appeared first on The Motley Fool UK.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.