Have you ever thought to yourself, “if I had decided to start investing early in life, I could already have built a lot more wealth than I have?”
If so, you are not alone. Investing over the long term can help people as they try to build wealth, so starting earlier can help.
The good news, though, is that it is never too late to start investing. Someone in their fifties who wants to build up a pot of extra funds before they retire still has time.
Time matters – but it’s not the only factor in successful investing
While the timeframe over which one invests is important, so are other things.
How much one invests is important too. So does what it is invested in.
By investing more not less (within what they can comfortably afford) and paying close attention to the quality of shares they buy and price they pay for them, an investor in their fifties might not be able to do as well as they could have if they had begun decades earlier – but they can close a lot of the gap.
Going for gold
Say, for example, that somebody aged 52 starts to put the maximum annual contribution into their Stocks and Shares ISA. For most investors that is £20k per year. Then, imagine they compound their ISA value at 8% annually.
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Currently, a 52-year old is likely to reach State Pension age at 67. That may rise in future, but sticking with that timeline means someone has 15 years in which to compound their annual contribution, before they retire.
By 67, their ISA ought to be worth around £543k.
In this example, I presume they then stop the contributions. But what if they simply continued them?
By 70, the portfolio should be worth around £749k – and by 80, around £1.9m.
Remember – that is for someone who, in their early fifties today, does not have a penny in their ISA (and maybe does not even have an ISA yet!)
Not only do I think it is not too late to start investing in your fifties, I think it can potentially be a lucrative thing to do!
Choosing the right shares
In my example I talked about an 8% compound annual growth rate. That can be made up of dividends and share price growth, though prices going down could reduce the return. Dividends are never guaranteed.
Such a target is not easy to hit, but I see it as feasible with careful share selection.
One share I think investors should consider is janitorial and catering supplies distributor Bunzl (LSE: BNZL).
Down 6% over five years, the share price now looks like good value to me. Bunzl offers a 3.2% yield and has grown its dividend per share annually for decades.
The share has fallen because of uneven performance in the company’s US business. Another risk is higher oil prices hurting profit margins on plastic items like disposable spoons.
Still, Bunzl has spent decades building a multinational business with economies of scale. It has a well-honed business model, large customer base, and attractively comprehensive offering for customers.
Over the long term, I expect the business to do well. I hope that will be reflected both in the share price and further dividend growth.
