It’s always a good time to buy cheap shares, but today’s particularly good when I can see bargains all over the FTSE 100. If I had no savings at 30, I wouldn’t waste any more time. Stock markets have made a slow start to the year, but I’d turn that to my advantage by going on a shopping spree at today’s discounted prices.
There’s no shame in having no savings at 30. Especially today, when people have so many other calls on their pocket. But time is of the essence.
Investing in equities is not a get-rich-quick game, as some newbie investors seem to believe. It takes years, decades, for wealth to build. I favour cheap UK dividend stocks, as they give me potential income and growth. However, I don’t expect them to double my money overnight. The compounding effect takes time.
Action this day
When judging whether a share is good value, I start by looking at the price-to-earnings (P/E) ratio. This divides a company’s share price by its earnings per share, with a figure of 15 typically representing fair value. Today, a quarter of the shares on the FTSE 100 trade at less than 10 times earnings.
It’s not simply a case of buying the cheapest though. BT Group, for example, has a lowly P/E of just six times earnings, but I personally wouldn’t buy it. The telecoms giant faces a host of challenges, including an oversized pension scheme, heaps of debt, and patchy earnings.
Insurer Phoenix Group Holdings is also cheap, trading at 6.3 times earnings, but looks more tempting to me. It has an incredible yield of 9.9%, which would double my money in less than eight years, even if the share price didn’t rise at all. High yields can often prove unaffordable, but this board seems confident of maintaining shareholder payouts.
There is no cast-iron right or wrong when buying shares. It’s a personal decision. With luck, I’ll get more stock picks right than wrong.
I’d love to pop Phoenix inside an empty Stocks and Shares ISA where I’d hope my reinvested dividends and the share price would compound and grow over time. But I’d also look to spread my risk across at least 15 different FTSE 100 dividend shares in total.
I would target cheap companies with steady profits, loyal customers, strong barriers to entry and the financial strength to keep increasing dividends. Also, I’d look to buy shares in different sectors, so I didn’t end up with, say, a whole heap of banks and not much else.
With that in mind, I’d consider buying the following five stocks with this year’s ISA allowance. Lloyds Banking Group, Phoenix Group Holdings, luxury brand Burberry Group, housebuilder Taylor Wimpey and mining giant Rio Tinto. As my table shows, all are cheap and all currently pay generous dividends.
Lloyds
Burberry
Phoenix
Rio Tinto
Taylor Wimpey
P/E ratio
6x
9.08x
6.3x
8.4x
6.49x
Yield
5.48%
5.03%
9.90%
7.11%
7.71%
Few have delivered much share price growth lately, but that’s why they’re cheap. I would look to hold for a minimum of five years, and ideally much longer than that, to give them time to recover their lost value.
The key is to get started today. Age 30 isn’t too late to begin investing in shares. It’s still possible to build a big enough portfolio to retire early. However, leave it another decade and that may no longer be the case.
The post No savings at 30? I’d fill an empty ISA with cheap shares and aim to retire early appeared first on The Motley Fool UK.
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Harvey Jones has positions in Lloyds Banking Group Plc and Taylor Wimpey Plc. The Motley Fool UK has recommended Burberry Group Plc and Lloyds Banking Group Plc. 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.
