Saving £1m for retirement is a difficult task. From a start point of having no savings at the age of 50 makes it even more challenging.
However, the FTSE 100 could provide growth potential and income appeal that makes the task easier. Following a lacklustre performance in recent years, the index now seems to be undervalued.
Since it has improving growth prospects that can be accessed with modest sums of capital, now could be the right time to start investing in large-cap shares to increase your chances of building a seven-figure portfolio.
With a price-to-earnings (P/E) ratio of around 14.8, the FTSE 100 may not appear to be undervalued at first glance. However, many of its members offer significantly lower valuations than that of the index. For example, across sectors such as banking, retail and housebuilding, there are a variety of companies that trade on ratings substantially lower than their long-term averages.
This suggests the index could offer a wide margin of safety at the present time. This, of course, is not a major surprise. The UK faces a period of major economic and political upheaval that has, so far, negatively impacted on consumer and business sentiment. Likewise, political uncertainty is high in the US, while the economic outlook for the global economy is subject to a variety of risks that could harm its future performance.
Although short-term risks could harm the performance of the index in the near term, it may present a buying opportunity for long-term investors. Since most 50-year-olds are likely to work for at least another decade, buying undervalued shares now and holding them over the coming years could lead to impressive returns that bring retirement a comfortable step closer.
Investing in the FTSE 100 doesn’t require vast sums of capital. Regular investment services and tracker funds enable almost anyone to benefit from the diversity and growth potential offered by the stock market at minimal cost. Therefore, starting today with small amounts of capital could be a worthwhile move.
The long-term performance of the world economy shows that while it does experience periods of difficulty and recessions, it’s always recovered from them. Even the effects of the very worst recessions, such as the global financial crisis, have only been temporary. Therefore, even if there are short-term challenges ahead, the long-term potential of the world economy could act as a positive catalyst on the FTSE 100.
Clearly, buying shares will not produce stunning returns in the short run. However, for someone who is 50 and is aiming to retire on a generous passive income, buying FTSE 100 growth shares while they trade on low valuations could improve your chances of achieving that goal. It could even increase your chances of making a million.
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Peter Stephens has no position in any of the shares 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.