No savings at 40? Here’s how I’d invest

Saving for retirement isn’t all that hard.

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Are you a 40-year-old with no savings? Don’t sweat. All you need is a steady stream of income and some disciplined, regular investing to end up ahead by the time you retire.

With an amount set aside for regular investment, the next step is to have a diversified portfolio that can develop the nest egg over time.

Investing for capital growth

Of the total investible amount, I would put the biggest chunk in shares whose prices have seen a steady rise over time to ensure returns on capital. In my research, I find that these are often also defensive shares and there’s a straightforward reason for this. Demand for these companies’ products doesn’t change when consumers cut down on spending during a slowdown.

The FTSE 100 Anglo-Dutch consumer staples’ producer Unilever is an example in this category. FTSE 100 healthcare company Smith & Nephew is another one to consider. It saw a drop in share price recently, which was a good opportunity for investors to buy, given that it’s performing well otherwise.

Some consumer cyclicals can also be considered here, like the miner Rio Tinto, whose share price has performed well over the past five years.

Investing for income

I’d also invest a smaller amount in companies that offer good income. Of course it’s more than likely that the growth stocks themselves would yield an income as well. Ideally, a share with a fast-rising price and a high dividend is ideal, but realistically, that might not always be the case.

Here I’d select sound companies whose share price, for whatever reason, is going nowhere. As a result, the income generated compared to the capital invested or the dividend yield could be quite good.

An example of this type of share is the FTSE 100 insurance giant Aviva, whose forward yield is estimated at 7.7%. Of course, this might change if there’s a sudden increase in the company’s share price, but going by muted share price trends seen in the past, I think that’s highly improbable.

Another example is British American Tobacco, which presently has a dividend yield of almost 7%. The long-term future of tobacco might be up in the air, but it is reasonable, speaking for the foreseeable future, the industry is very much around.

Safest bet

Last but not the least, I would put some investments in gold. In the most unlikely scenario, that all else fails, the yellow metal can save the day. At the very least, our capital can stay protected. My preferred route to investing in gold would be through physical gold exchange-traded funds.

With this as the investing strategy, even modest amounts of monthly savings can actually make us millionaires by the time of retirement, or at least bring us very close to it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.

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