For decades, investment strategies focused on FTSE 100 shares have proven to be a great way to generate long-term wealth. My own stock-buying philosophy is geared heavily towards Footsie shares, complemented with a peppering of FTSE 250 stocks.
Who can blame me? The UK’s leading share index has delivered a brilliant 7.5% average annual return since 1984. That’s much better than the return investors could have made with low-yielding savings accounts over that period.
Past performance is no guarantee of future gains. But let me show you how I could make a healthy passive income for retirement with FTSE 100 stocks.
A £25k+ passive income
On my journey to create long-term wealth I’ve laid down the following criteria:
To put £10,000 in a tax-efficient Stocks and Shares ISA at the beginning
To invest this sum — along with an extra £200 each month — in FTSE 100 shares
To reinvest any dividends I receive in more Footsie stocks
To retire in 30 years, giving my retirement fund plenty of time to grow
If I manage to meet all of these criteria — and assuming that the Footsie’s 7.5% average yearly return remains in tact — I would have made an impressive £633,194 by the end o it.
This investing strategy could make me more than £633k. Source: thecalculatorsite.com
If I then chose to withdraw 4% of this sum down each year I would enjoy a decent income of £25,327. Why 4%, you ask? At this level, I could draw a passive income for three decades before my retirement pot ran dry.
A FTSE 100 share I’d buy
I would also need to spread my net wide and not just invest in a small pool of similar Footsie stocks. This narrow focus could see me miss out on growth opportunities elsewhere, and leave me exposed to greater risk from industry- and economic-related factors.
Instead, I’d look to build a broad portfolio of at least 15 stocks that span different sectors, geographies, and which perform differently at each stage of the economic cycle. This way I can continue growing my portfolio when times are good as well as when things get tough.
I’d also seek companies that boast robust economic moats, as investing expert Warren Buffett would describe. These are competitive advantages that safeguard long-term earnings and defend market share from rival businesses. GSK (LSE:GSK) is a perfect example of one such stock, I feel.
Buffett once held the company’s shares through his Berkshire Hathaway firm, and it’s easy to see why. Many of its drugs (like its Shingrix shingles treatment) are leaders in their fields. The firm is also a leading force in the fast-growing vaccines market thanks to heavy investment in recent years.
It’s also not easy and cheap to develop pharmaceuticals products, which protects the firm from the threat of new market entrants. GSK spent a whopping £5.5bn on research and development in 2022. That’s more than the market-cap of many FTSE 100 companies.
Developing drugs is an expensive and complicated business. And troubles at the lab bench can have a significant impact on earnings. But GSK has an excellent track record on this front, which is why I’m looking to add it to my portfolio when I next have cash to invest.
The post £10,000 in savings? I’d aim for £633k in FTSE 100 shares and £25k a year of passive income appeared first on The Motley Fool UK.
Like buying £1 for 51p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK. 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.
