I’ve spent the last year buying bargain-priced UK shares inside a self-invested personal pension (SIPP) with one aim in mind. I want the freedom to retire early and reckon building a portfolio of blue-chip shares is the best way to achieve it.
I’m not saying I actually will retire early, because I like what I do for a living. I just want it to be a possibility, say, if I fall ill, get burned out, or fancy taking things a bit more easily.
If I had a spare £20,000 (I wish!) I wouldn’t hang around. I’d go shopping for FTSE 100 shares right now.
I’m buying FTSE 100 bargains
Time is of the essence for three reasons. First, the sooner I start investing, the longer my money has to grow.
Second, now looks like a brilliant time to buy FTSE 100 shares at affordable prices, before the next stock market bull run kicks in.
Finally, I think that bull run is getting closer, as interest rates fall and international investors wake up to the opportunity in the UK. Global fund managers are now overweight on UK shares for the first time since July 2021, according to the Bank of America Global Fund Manager.
I think FTSE 100 bank NatWest Group (LSE: NWG) is a brilliant example of the value UK shares offer.
The big banks have been out of favour since the financial crisis in 2008, but now they’re staging a recovery.
That NatWest share price is up 43.28% in the last year. Yet it still doesn’t look expensive, trading at 6.87 times earnings. The average FTSE 100 stock is more than twice as expensive, trading at 15 times earnings.
Better still, NatWest offers the potential for a steady dividend income stream. Today, the stock has a trailing yield of 4.92%. That’s forecast to rise to 5.41% over the next year, then to 5.58% the year after that. With luck, that’s just the start.
High and rising passive income
With shares, nothing is guaranteed. NatWest still has to keep generating plenty of cash, to fund shareholder payouts. Net interest margins – the difference between what banks pay savers and charge borrowers – are likely to fall when the Bank of England cut rates. That could squeeze profits.
Yet I still believe with a long-term view NatWest should deliver a tidy combination of income and growth.
I wouldn’t put my full £20,000 into one stock, far from it. I’d diversify by investing across five different stocks, putting £4k into each.
Off the top of my head, I might supplement NatWest with insurer Aviva, whose shares yield a bumper 6.81%. I might add energy network National Grid, which yields 5.28%. Both look reasonable value.
Consumer goods giant Unilever is swinging back into form after a tough spell. It offers solid income and growth prospects. I’d round off my five with mining giant Rio Tinto, which looks cheap trading at 9.3 times earnings and has a bumper 6.48% trailing yield.
Share prices tend to be volatile in the short run, but history shows they beat every rival asset class over time. That’s why I’m basing my retirement plans around them.
