£1m might sound like an ambitious target, but I think many people can reach this goal. One way involves investing in the best FTSE 100 shares. There are some caveats and needs to be an awareness of the time it might take, but let’s consider what would be required.
First, I’d need a long enough time frame. I won’t reach a million in days, or even years. The time it takes will depend on how much I invest and which FTSE 100 shares I choose.
FTSE 100 returns
The average stock market return is said to be around 8%-10%. As this is an average figure, it includes some years where the Footsie returned over 20% a year, and even some negative years.
As I’m only investing the modest sum of £400 a month to reach a significantly large goal, I’d aim for an above-average annual return.
Based on my investment, I calculate that I’d need to earn 11% a year to reach £1m in 30 years.
It’s encouraging to learn that over the past decade, one-third of FTSE 100 shares managed to achieve this. Some even managed to grow by over 20% a year. But how can I find these winners for the coming years?
Quality features
I’d focus on quality shares with growing earnings. There are specific characteristics that I’d look for. Let’s consider each one.
First, what makes a quality share can be subjective. But one metric that can quantify this approach is the return on capital employed of the business.
Popular quality-share investor Terry Smith often highlights this figure, and commonly targets over 15% for his investments.
Next, I’d look for companies that have a durable competitive advantage versus their peers. Warren Buffett famously refers to this as a moat. It can often be in the form of strong brands, superior technology, or patents.
Companies that have some form of moat also tend to achieve superior profit margins.
Lastly, I’d look for robust balance sheets indicating businesses that operate with manageable levels of debt.
Top Footsie shares
So which FTSE 100 shares meet my criteria? Right now, I’d buy Ashtead, JD Sports Fashion, Diageo, Spirax-Sarco Engineering, and Experian.
On average, this selection offers a return on capital employed of 19%, and an operating profit margin of 24%.
In addition, over the past decade these five shares managed to grow by a whopping 21% a year including dividends.
No guarantees
Bear in mind that there are no guarantees that this stellar performance will be replicated over the coming decade.
That said, I’d much rather put my money in these quality companies than high-risk penny stocks.
Another reason for this choice of FTSE 100 shares is that they all operate in different industries. That provides me with diversification benefits and avoids putting all my eggs in one basket.
Finally, by picking individual shares I’d need to keep an eye on them. Over time, things can change. For instance, new competitors or technologies can disrupt business models.
But by making these efforts, I’d put this £1m in my sights.
The post How I’d drip-feed £400 a month into FTSE 100 shares to aim for a million appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
2 high-yield FTSE 100 dividend shares to buy in 2023?
1 under-the-radar stock I’d buy to invest like Warren Buffett
Best British dividend stocks to buy for December
3 ‘hidden’ high-yield stocks to buy in December
Why did this FTSE 100 company soar 26% in November?
Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Experian 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.