If I had no savings at 30, I’d park some cash in an easy access account for emergencies then start investing in FTSE 100 shares. I think the UK’s blue-chip index is a brilliant way to build long-term wealth, although it’s not for everybody.
While history shows that equities outpace almost every rival asset class over time, buying individual company shares is risky. Profits are unpredictable. Dividends are never guaranteed. Companies can go bust. Researching shares takes time and effort.
Many are better off diversifying their risk by purchasing a low-cost investment funds such as a FTSE All-Share tracker. But for those who are interested, buying FTSE 100 stocks can be fascinating and hugely rewarding.
I like stock picking
If I was starting entirely from scratch, I’d consider buying the following three companies inside my annual £20,000 Stocks & Shares ISA allowance for lifelong tax-free returns.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
I’d start with a defensive dividend growth stock like consumer goods giant Unilever. I’ll confess that recent performance has been bumpy. Management has made mistakes. The cost-of-living crisis hasn’t helped. Yet I’m often more tempted by shares that are struggling, as there’s scope for outsize gains when the cycle changes and they recover.
Unilever has a huge portfolio of global consumer brands ranging from Dove Soap to Ben & Jerry’s ice cream, giving it massive global diversification. In the last decade, I got used to the stock trading at around 25 times earnings (a figure of 15 is seen as fair value). Today, it looks cheap by its standards, at just 18.22 times earnings. It yields 3.72% a year.
In a tough market, Unilever has pricing power. Most of the recent profit increase came from raising prices rather than boosting sales. I don’t expect an instant recovery but since I buy shares with a minimum 10-year view, I can give it time. Unilever will get there, and while I wait I’ll reinvest all my dividends to buy more stock.
This three are just the start
I’d match this with another core portfolio holding, insurer and investment fund manager Legal & General Group. This FTSE 100 stalwart offers an incredible yield of 9.08%, yet trades at just 5.64 times earnings. While its shares have idled lately I’m hoping they will spike when the stock market recovers and its clients start investing again. It’s currently my favourite pick on the entire FTSE 100.
My final choice for a starter portfolio is defence manufacturer BAE Systems. In contrast to Unilever and L&G, its share price has been racing along as demand for weapons grows in an uncertain world.
There’s a good chance that will continue as BAE has a massive £66bn order backlog that should keep revenues coming in for years. Today’s valuation of 18.2 times earnings looks decent, given its prospects. The 2.66% yield is on the low side but its dividends tend to rise nicely every year. I think it’s a great long-term dividend growth stock and perfect for someone starting to invest in shares at 30 or any age.
