It’s never too late to begin investing for retirement. Even someone who starts investing in FTSE 250 stocks at 40 could — based on past performance — become a market millionaire by the time they retire.
Let me show you how I’d aim to hit this target by regularly investing.
Big tax savings
The first thing I’d do is consider which type of account to best maximise my returns. I wouldn’t just plonk some cash in a General Investment Account (GIA) and begin building my portfolio.
This is because, over the long term, I may end up paying a large amount of tax on my capital gains and dividend income with one of these products.
It’s just as easy to open and operate a tax-efficient Stocks and Shares ISA and/or Self-Invested Personal Pension (SIPP). So I’d do this. With a SIPP, I can also enjoy tax relief of 20% to 45%.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Making a million
As mentioned at the top, focusing my attention on FTSE 250 shares could also help me to hit millionaire status. This is because the long-term average annual return for the index sits at a juicy 11%.
Okay, the FTSE 250 has a greater concentration of growth stocks than, say, the FTSE 100. This means that it can underperform during periods of economic weakness.
However, as we’ve seen since its inception in 1992, the FTSE 250 also has the potential to deliver blowout returns, as earnings rapidly grow across the index and share prices rise.
Past performance is no guarantee of future returns. But £400 invested in the index each month would, based on that 11% average annual return, turn into £1,121,808 after 30 years. I could then draw down 4% of this each year for a 20-year £44,872 passive income.
2 top FTSE 250 shares
So which shares would I buy? I’d definitely seek a blend of defensive and cyclical shares to achieve a smooth long-term return. I’d also buy shares that operate across different industries and regions to help me spread risk.
Hochschild Mining is a classic defensive share that could help diversify my portfolio. It produces substantial quantities of gold and silver from projects across the Americas. Since demand for precious metals often rises during tough times, it could help offset losses in other areas of my portfolio.
That’s not all. Because silver has significant industrial applications, profits here might also rise during the early stage of any economic recovery. Hochschild could prove be a shrewd buy despite the threat of production hiccups that could dent earnings.
I might also want to consider investing in IT business Softcat (LSE: SCT). This FTSE 250 company is an expert across multiple fields like cloud computing, cybersecurity, digital workspaces and IT infrastructure. And so it has a great chance to increase earnings during periods of economic growth.
Each of its areas of expertise have considerable scope for growth. Cybersecurity revenues alone are tipped by Statista to grow at annualised rate of 7.92% between now and 2029.
Softcat’s share price has increased almost 500% in the past decade as the digital revolution has continued. Fierce competition across its markets could impact profits growth in the future. But as part of a diversified portfolio, it may also prove a great stock to consider.
The post 2 FTSE 250 stocks to consider for a £44,872 income in retirement appeared first on The Motley Fool UK.
Investing in AI: 3 Stocks with Huge Potential!
🤖 Are you fascinated by the potential of AI? 🤖
Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.
If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…
Then you won’t want to miss this special report inside Motley Fool Share Advisor – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And today, we’re giving you exclusive access to ONE of these top AI stock picks, absolutely free!
Get your free AI stock pick
More reading
4 heavily shorted UK stocks that Fools think could be great long-term investments!
9% yield and exceptional value! Here’s a potential pick for my Stocks and Shares ISA
If I could buy any FTSE 100 shares today, it would be these 2 picks!
The IAG share price is up 78% but still dirt-cheap with a P/E of 4.2!
This FTSE 250 company looks undervalued to me
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat 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.
