While starting to invest for retirement at a young age is highly beneficial, it’s never too late to start aiming to build a nest egg from which to draw a passive income in older age. With the FTSE 250 currently offering a number of income and growth investing opportunities, now could be the right time to start buying high-quality stocks while they trade on low valuations.
Certainly, there are risks facing the UK and world economies. But with many stocks currently offering wide margins of safety, there appear to be numerous opportunities for someone aged 50 to start building their retirement savings portfolio.
Historically, the FTSE 100 has been a popular index from which to generate an income. It has often had a higher dividend yield than the FTSE 250, which is still the case today.
However, the FTSE 250’s 3% dividend yield doesn’t necessarily paint the full picture when it comes to the index’s income opportunities. Around a quarter of the FTSE 250’s members currently offer a dividend yield that’s in excess of 5%. As such, it’s possible to build a diverse portfolio of stocks that together offer a higher income return than the FTSE 100.
With dividends having contributed a large portion of the stock market’s historic total return, focusing your capital on income shares could be a sound idea. They could produce a surprisingly large nest egg that helps to boost your passive income in retirement.
While risks such as Brexit are likely to continue throughout 2020, the valuations of many FTSE 250 shares suggest investors have factored them in. Many mid-cap shares currently have ratings below their historic averages, which means their risk/reward ratios may be more attractive than they have been in the past.
Furthermore, with around half of the FTSE 250’s income being generated outside of the UK, it’s possible to obtain a significant amount of geographic diversity when buying mid-cap shares. This could help to reduce your overall risk, and may enable you to benefit from the fast pace of growth offered by emerging economies such as India and China.
Alongside this, the growth prospects for the UK economy may be more positive than some investors are currently pricing in. With high levels of employment, modest inflation and GDP growth expected to be at a similar level in 2020 to what it was in 2019, the prospects for UK shares could be relatively encouraging.
While at age 50 there may not be as much time for compounding to boost your portfolio as there was 10 or 20 years ago, the prospects for the FTSE 250 suggest that it may be possible to build a generous nest egg before retirement. As such, now could be the right time to start buying dividend-paying mid-cap shares.
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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.