Many people in the UK aged 50 or over have no savings, and no plans for earning passive income above their state pension. But it’s not too late to get started investing in the UK stock market.
But firstly, I want to put one idea to rest. I’ve no idea what the next big winner will be, and I don’t know any get-rich-quick shortcut.
Look at all the great names in investing. Warren Buffett, Benjamin Graham, the other ones… How many did it super quick? I don’t see any.
Face challenge with optimism
A 50-year-old will face a tougher challenge than someone with a couple more decades ahead of them. But we oldies are tough and up to the the task, aren’t we?
We might need to keep working a bit longer, perhaps until 70. But that can instantly switch us to a more optimistic outlook. How much more inspiring is it to ask “With 20 years ahead of me, what can I achieve?” than “I’m 50 already, is it too late?“
Bear in mind that income from shares isn’t guaranteed. And as share prices sometimes fall, we could lose some of our investment too. That makes diversification essential, even more than for someone with 50 years investing potential ahead of them.
Instant diversification
That’s why I love investment trusts. I think every stock market newcomer should consider them ahead of anything else. An investment trust spreads its shareholders’ cash across a range of investments, significantly reducing the risk associated with individual stocks.
City of London Investment Trust (LSE: CTY) is one of my favourites. It aims for income from UK stocks, having raised its dividend for 58 years in a row. Forecasts put the dividend yield at 4.7%. The trust invests in HSBC Holdings, Shell, BAE Systems, AstraZeneca, British American Tobacco… Those are just five of its top 10 holdings, and already we can see the diversification we’re getting.
There’s still no safety guarantee, so I’d buy others to go with it. The biggest danger is possibly missing its dividend rise one year, as that could spook investors into selling up.
As well as dividends, we’re looking at a 40% share price gain in the past five years. And it’s almost doubled the FTSE 100 return since 1985. The trust predates the index by some way, having launched as long ago as 1891.
Likely returns?
I think this is the kind of stock that could at least come close to future long-term Footsie returns, which have averaged 6.9% per year. So if our 50-year-old can match that, through this or other investment trusts or through individual stocks, what might they achieve?
Someone who could afford to invest £500 per month could end up with a pot of £252,000 after 20 years if they can average that annual 6.9%. And then that could be enough to earn over £17,000 passive income at the same yearly rate, or around £1,400 per month.
Still think it’s too late to open a Stocks and Shares ISA and start investing?
