If I had no savings or investments at 40 (or any other age for that matter), I’d want to start investing sooner rather than later. The earlier I invest my money, the longer it has to grow.
I would start by investing the UK, mostly in blue-chip stocks listed on the FTSE 100, via my Stocks and Shares ISA allowance. Every adult can invest up to £20,000 in an ISA each year, although I wouldn’t invest it all in one swoop.
Instead, I’d drip-feed money into the market over the summer, taking advantage of any dips, if there are any. Nobody wants to invest £20,000 only to see its value crash the next day.
I’d spread my investments
If I had no retirement savings, aside from maybe a workplace pension, I’d start by investing in a simple, low-cost, index-tracking exchange traded fund (ETF). That would spread my risk across all 100 companies listed on the index.
Over the last 20 years, the FTSE 100 has delivered an average annual return of 6.89%, which is far better than cash. While there’s no guarantee it will repeat that, it could do even better. I would tap into its growth prospects via the iShares Core FTSE 100 UCITS ETF. This charges just 0.07% a year, so I’d keep nearly all my investment gains to myself.
Personally, I’d invest £5,000 of my ISA allowance there. Then I’d try to generate a market-beating return from individual FTSE 100 shares.
This isn’t for everyone. Buying individual companies stocks is risky, as their share prices are more volatile and there’s always the danger one could crash, or even go bust. I would mitigate this by spreading my remaining £15,000 across five different stocks from five different sectors of the FTSE 100, putting £3,000 into each.
One of the reasons I like buying individual lead index stocks is that I can secure higher yields. While the FTSE 100 currently offers an average yield of 3.5%, insurer Legal & General Group now yields a juicy 8.27% a year, while cigarette maker British American Tobacco yields 7.44%. And that’s just two examples.
Top shares I’d buy now
I’ve recently bought L&G, and I think it’s a pretty solid starting point for a newbie 40-year-old investor. I would supplement this by investing in a bank, of which Lloyds Banking Group looks least risky. It’s forecast to yield 6.2% this year and that income should rise over time.
I might balance this with two stocks that offer lower yields but have a solid history of share price and dividend growth. My choices here are spirits maker Diageo and household goods specialist Unilever. For my final pick, I might invest in the relatively low-risk pharmaceutical sector, via GSK.
None of these companies are guaranteed to outperform the market, and their dividends aren’t guaranteed either.
That’s why I would invest my £20,000 ISA with a long-term view which, in practice, means all the way to retirement and beyond. That gives my time to overcome short-term shocks, such as a market correction.
I’d reinvest my dividends to boost growth, then think about drawing them as income when I retire. At age 40, my £20k ISA would still have plenty of time to compound and grow in value.
