The FTSE 100 has been through a bumpy time since topping 8,000 for the first time in February, closing on Friday at 7,461.87. As a long-term investor, I see this more as a buying opportunity rather than something to worry about.
It means that some of my favourite stocks are cheaper than they were just a few months ago, and their dividend yields are higher too.
I’ve been investing in FTSE 100 stocks for years, but if I had no savings at 40 and was starting from scratch, I’d ignore all the negative noise about the UK economy and go shopping for shares at today’s bargain prices.
No time to lose
At 40, I would still have at least 25 years before retirement, and I’d get ambitious by aiming to build a £1m portfolio in that time. It’s doable, but it takes effort and commitment.
The average total return on the FTSE 100 over the last two decades is 6.89% a year. Using that assumption, I’d need to start investing £800 a month and increase my contribution by 5% a year to make a million. Using these assumptions, I’d end up with £1,033,362.
When investing in shares, there are no guarantees. I could end up with more than that, or less, depending on how well my stocks perform. I understand that £800 a month is a tall order, given the cost-of-living crisis, but even much smaller sums will grow over time.
If I started by investing, say, £200 a month at 40, I’d still end up with £258,341 over 25 years. Which is a lot better than having no savings at all.
I’d look to build a balanced portfolio of FTSE 100 shares covering different sectors, and with different risk profiles. I’d start with a brace of relatively solid dividend growth stocks, spirits giant Diageo and consumer goods company Unilever. They sell products that people continue buying when money is tight, and have a huge global market.
I’d like to buy all of these and more
Next, I’d load up on some high yielders. There are plenty available today, at dirt cheap valuations. Insurer and asset manager Legal & General Group yields 8.47% a year, while wealth manager M&G yields 9.97%. Sky-high dividends can be vulnerable, but these look more solid than most.
I’d shift into the mining sector and buy Rio Tinto, which yields 7.38%. Then I’d buy one of my favourite income stocks of all, Lloyds Banking Group, which yields 5.33% today but, with luck, that should rise over time.
FTSE 100 housebuilders look risky as a house price crash looms, but when interest rates peak I’d buy either Barratt Developments or Taylor Wimpey.
Then I’d invest in equipment rental firm Ashtead Group, which generates 80% of its revenues from the US. Other stocks on my hit list include pharmaceutical firm GSK, packaging specialists Bunzl and Smurfit Kappa Group, and UK tech growth hopes RELX and Sage Group. Finally, I’d consider Scottish Mortgage Investment Trust, which invests in early-stage growth stocks.
My portfolio is likely to contain one or two losers, but hopefully they will be outnumbered by the winners. I’ll reinvest all my dividends for growth today and then draw them as income when I retire, whether that’s at 65, 66, 67, or later.
