Planning for retirement can be tough. It’s not only difficult to live within your means in order to generate capital that can be used to invest for the long term, but deciding where to invest it is challenging when there are a wide range of options available.
At the present time, the returns on assets such as cash and bonds mean that they may not be worthwhile for someone with a long-term time horizon. Likewise, buy-to-let property is being taxed to a greater extent than in the past, and also requires significant amounts of capital to buy just one property.
As such, investing in the stock market through a Stocks and Shares ISA could be a good idea. Shares are highly accessible, offer growth potential and income opportunities that could boost your retirement savings.
Accessibility
Investing £500 in the stock market is relatively straightforward and cost-effective. A number of ISA providers offer regular investment services that do not necessarily have to be used every month. In other words, they can be used for one-off purchases in some cases, and in doing so, an investor can reduce their cost of buying stocks to as little as £1.50 per trade.
Such a small amount of commission means that the cost of investing modest amounts of capital is relatively low. Over time, this can have a significant impact on total returns, and may bring you a step closer to retirement.
Tracker funds
A sound means of obtaining exposure to the stock market is via a tracker fund. It aims to mimic the performance of a wider index, such as the FTSE 100, and can offer a relatively strong rate of growth in the long run.
A tracker fund may be a good starting point for someone looking to invest £500 or a similar amount of money. It provides significant diversification to reduce risk, as well as exposure to a wide range of growth companies that can produce returns that are in the high-single-digits on an annualised basis.
Growth opportunities
The FTSE 100 also offers a number of stocks that could deliver even higher returns than the wider index. Therefore, an investor who has a portfolio from which they can buy a range of companies may wish to focus their capital on equities, rather than funds.
Since the FTSE 100 has failed to generate significant growth over the last few years, it appears to offer good value for money. Its dividend yield currently stands at 4.4%, for example, which could highlight that it offers growth potential in the coming years. A high dividend yield also means that the index offers income potential – especially since around a quarter of its members currently have yields that are in excess of 5%.
Takeaway
Investing £500 in the stock market could be a sound idea. Using a regular investing service could keep commission costs down, while a tracker fund could offer growth potential alongside diversification. Over time, capitalising on the value and income potential of individual FTSE 100 shares could help to improve your retirement prospects.
