Being able to give up your job and achieve financial independence might seem like a distant dream, but it really is possible if you focus on saving and investing your money sensibly.
There are many different investments out there to choose from, all of which can produce an attractive return on your money. However, I think the FTSE 100 is one of the easiest ways to invest your money for the future, and today I’m going to explain why.
If you want to achieve financial independence, it is vital that you get your money to work as hard as possible for you. There is only one of you, and you can only work so many hours in a day, so being able to earn money while you sleep can really help you achieve your money goals.
In my opinion, a portfolio of dividend stocks is the best way to earn money while you sleep. You could go out and choose a portfolio of dividend stocks yourself, but this could be time-consuming, and there is always going to be a chance that you might pick the wrong company.
Instead, I think the FTSE 100 is a much better alternative. At the time of writing, the UK’s leading stock index supports a dividend yield of 4.5%. What’s more, because this distribution is an aggregation of all the dividends paid by the 100 companies in the index, it is virtually guaranteed. Even if five of the index’s constituents decide to cut their dividends tomorrow, you won’t be left empty-handed.
On top of this, the FTSE 100 is a global index. Around 70% of profits are generated overseas, which is excellent news for UK investors who might be concerned about what the future holds for the UK economy after Brexit.
And the final reason why I think the FTSE 100 could help you achieve financial independence is its potential for capital growth. Over the past 10 years, the value of the index has grown at an average annual rate of 9.7%, that’s including dividends and capital growth. At this rate of growth, every £1,000 invested in the index 10 years ago would be worth £2,523.
As the FTSE 100 is the UK’s premier stock index, it is relatively easy to invest in it.
Today you can buy a low-cost tracker fund that gives you exposure to it for an annual cost of less than 0.1%. Most low-cost online stockbrokers also have a monthly investing option you can choose, which will allow you to invest as little as £50 a month into the FTSE 100. A small contribution of just £50 a month might not seem like much, but over the long term, when combined with the wealth-creating powers of the FTSE 100, this small monthly contribution will grow into a considerable sum.
Indeed, according to my figures, a saver who deposited £10,000 in the FTSE 100 a decade ago and made subsequent monthly deposits of £50, would have accrued a savings pot of more than £36,000 over this time.
That’s why I think the FTSE 100 could transform your financial situation for life.
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Rupert Hargreaves owns no share mentioned. 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.