I’d put £800 each month in a SIPP to retire as a millionaire!

By putting money into a SIPP monthly for 30 years, could this writer retire as a millionaire? He does the maths — and explains his strategy.

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Putting money into my SIPP during my working life to help me retire as a millionaire?

Sounds good! I think it is also a realistic aspiration.

Here is how I would aim for that goal by investing £800 each month.

Time is an investor’s friend

It is a cliché that the earlier one starts investing, the better.

But – like a lot of clichés – it is grounded in truth.

With a long timeline to invest a SIPP, those £800 monthly contributions add up. There is also more time for investments to show their worth over the long run.

Over a 30-year period, for example, if I invested £800 per month in my SIPP and compounded it at 7.5% annually, I would have over a million pounds in my portfolio at the end of the period.

Staying the course

Is a 7.5% compound annual return realistic?

In my opinion, the answer is yes.

Bear in mind that that annual return could include both capital gains and dividends. On the other hand, capital losses (due to a fall in the value of shares in my SIPP) could eat into it. Still, I think achieving a 7.5% compound annual return is well within the realms of the possible.

Some investors actually do much better than that.

Looking for durable blue-chip success stories

I would stick to tested principles and invest conservatively. Thirty years is a long enough timeframe to expect various upsets, from company-specific disappointments to general market downturns caused by a recession.

My focus would therefore being on selecting blue-chip shares I felt had staying power. I would look for companies with large customer markets I reckon are set to endure, proven business models, and attractive valuations.

Finding shares to buy as I aim for a million

What might be an example?

One share in my SIPP is JD Wetherspoon (LSE: JDW).

I expect demand for social venues like pubs and eating places to endure. There may be fewer in future than there were in the past, though, due to higher operating costs and tighter consumer budgets.

That is a risk for a company like JD Wetherspoon, as it could hurt turnover and profit. But although Spoons has fewer pubs than it once did, it nonetheless reported record revenues last year.

That reflects a number of competitive advantages it has, from much lower beer prices than competitors to prime city centre locations.

Perversely, I think a shrinking pub market actually plays into JD Wetherspoon’s hands. Less competition ought to drive more customers through its doors.

The shares have fallen 44% in five years – hardly the stuff of millionaire retirement dreams! On top of that, the dividend remains suspended.

But I see that as offering value.

Spoons’ market capitalisation of under £1bn looks cheap for a business of its proven capability. I think there is room for substantial share price growth in the coming decade if the business continues to perform well, as well as a reintroduction of the dividend.

I plan to keep holding JD Wetherspoon shares in my SIPP.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in J D Wetherspoon Plc. 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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