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Retirement savings: here’s how I’d aim to make a million from investing in the FTSE 100

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Screen of price moves in the FTSE 100
Image source: Getty Images.

Although there are risks facing the world economy at the present time, the FTSE 100 continues to offer a wide range of opportunities for investors who are seeking to retire with a million.

Certainly, adopting a cautious stance may be tempting at the present time. But with global economic growth expected to remain robust, and there being a number of stocks trading on low valuations, now could be a good time to invest for growth across a range of geographies.

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Growth potential

With the FTSE 100 having recorded a decade-long bull market, some investors may be of the view that the index is due to experience a bear market. While this may prove to be correct, the index’s valuation suggests that it is not overpriced even after more than doubling in just over 10 years.

For example, the FTSE 100 has a dividend yield of 4.6% at the present time. This suggests that it is not yet trading at levels that suggest it is a time to sell stocks, rather than buy them. Indeed, it could be the case that the index was grossly undervalued in 2009, and that it has not yet reached a point where other assets have greater relative appeal.

As such, although some defensive shares may seem to be appealing, now could be a good time to invest for growth.

Regional diversity

Since the UK faces an uncertain economic and political outlook, it may be tempting to focus on companies that operate solely in international markets. This would not be a difficult task, since the FTSE 100 generates the vast majority of its revenue from outside of the UK.

However, holding stocks from a diverse range of regions could prove to be a shrewd move. Since the outlook for countries such as the US and China hinges on factors such as trade negotiations and decisions by a relatively small number of individuals that are difficult to predict, diversifying geographically could reduce overall risk.

Moreover, UK-focused stocks appear to offer low valuations at the present time when compared to their internationally-focused peers. This could mean that if Brexit proves to be less impactful on the UK’s GDP growth than some investors fear, there may be scope for significant upward re-ratings on UK-focused shares.

Dividend growth

With interest rates expected to be low over the next few years, investing in stocks that can deliver strong dividend growth could prove to be a shrewd move. Not only could they provide a passive income for those investors who require it, they may also become increasingly popular among a wide range of investors. This could lead to share price growth over the medium term.

By focusing on a company’s financial strength and dividend affordability, as well as its track record of dividend growth, it may be possible to unearth a number of FTSE 100 stocks that have bright futures from an income investing perspective. Alongside growth stocks and UK-focused shares, they could catalyse an investor’s portfolio so that they have a surprisingly large nest egg in retirement.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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