For many investors, being able to retire with £1m in the bank, is the dream. A million-pound pension would allow you to make the most of your retirement, and live comfortably without having to worry about money.
The good news is, it is relatively straightforward to make a million in the stock market. All you need is time and a little patience.
Today I’m going to explain why I believe the Aviva (LSE: AV) share price is the perfect investment to help you reach this critical milestone.
Slow and steady wins the race
Aviva is one of the largest pension and life insurance companies in the UK, which isn’t a particularly exciting business. However, it is an essential business and one that is unlikely ever to go out of fashion.
Firms that have the most durable business models are the best investments to help you make a million in my opinion because you can buy and forget the stocks without having to babysit them. The latest hot tech stock might seem like the best way to double your money quickly, but the chance of it failing and you losing everything is significantly higher.
That’s why I’ve invested the bulk of my retirement funds in companies with durable business models, like Aviva.
And because the company’s primary business is managing pensions and savings, Aviva’s management always has to act in the best interests of long-term stakeholders. The group needs to show its customers that it will still be around when they come to retire. If customers don’t trust the enterprise, why should they entrust it with their retirement fund?
Considering all of the above, I think Aviva is the perfect company to help you retire with a million. Here’s how.
The path to a million
Right now, shares in Aviva support a dividend yield of 7.1%. City analysts expect the company to increase its per-share distribution by around 11% in 2019, giving a prospective dividend yield of just under 8%.
According to my figures, you need to invest just £300 a month for 40 years at an interest rate of 8% to make £1m, that’s excluding capital growth. If you have less than four decades to go before retirement, Aviva can still help you make a million. You just need to save more every month.
If you plan to retire in 30 years, you will need to save £650 a month at an average interest rate of 8% to make a million according to my figures.
As noted above, these estimates exclude any capital growth. If we include prospective capital growth, the returns are even more impressive. Indeed, over the long term, I do not think it is unreasonable to assume that Aviva’s earnings per share will grow at a mid-single-digit percentage every year.
Assuming the stock’s valuation remains constant, this implies single-digit capital gains on top of the 8% annual dividend yield. In the best case scenario, investors could see a total annual return 10% to 12% from both income and capital gains. With an average annual total return of 12%, you would need to save £280 a month for 30 years to make £1m.
