As a long-term investor, I tend to think investors help themselves if they start buying shares earlier rather than later in life.
So is there an age beyond which I do not think it is worth bothering anymore?
Making the most of the available opportunity
I do not think so. For example, someone who has not yet invested a penny by 50 could still build a sizeable retirement pot by the time they hit the 67 retirement age (set to rise to 68, despite life expectancy having fallen compared to before the pandemic).
Such a person would though do well to consider how to make as much as they can of their remaining investing timeframe.
For example, imagine that they put the maximum annual contribution into their Stocks and Shares ISA, which is £20k.
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.
On top of that say they put £1k a month into a Self-Invested Personal Pension (SIPP). That would be topped up, thanks to tax relief, to £1,250 (for a basic rate taxpayer; higher and additional rate taxpayers could get even more tax relief).
So per year, the investor would be putting £35k into stocks and shares. Doing that from 50 to 67 would allow £595k to be invested.
Trying to harness the stock market to your advantage
But that amount is not yet benefitting from stock market investment. If just putting the money into a Cash ISA instead, for example, the £20k a year would add up in the same way. Plus, it could potentially earn bank interest at very little, if any, risk.
The idea, instead, would be to start buying shares to hold over time, hoping that there may be some capital gain and dividends. There might not, of course: shares can lose value as well as rise and dividends are never guaranteed.
But even at 50, the timeline to retirement is long enough that a diversified portfolio of carefully chosen shares ought to have enough time to experience a variety of conditions in the stock market – hopefully including some good ones.
Say the total amount invested grows at 7% annually (we call this compounding). Starting at 50 with nothing and invested as I outlined above, the retirement pot ought to be worth around £1,079,408 by the age of 67.
So can it be worth it to start buying shares at 50? I’d say so!
Choosing the right shares matters
None of us has a crystal ball, but key to this approach is buying and holding high-quality shares.
One I think investors should consider is FTSE 100 asset manager M&G (LSE: MNG), with its 6.6% dividend yield.
The firm aims to grow its dividend per share each year. It has been doing so over recent years, although there is no guarantee it will manage to sustain that over the long run.
The company operates in a market with high customer demand. I expect that will remain the case. And its strong brand, large customer base and deep financial markets expertise are all competitive advantages.
I think its multinational footprint is helpful, although it also adds complexity and costs.
One risk is that a market crash could see policyholders pull out funds, hurting earnings. But from a long-term perspective, I like the firm’s prospects.
