Having no savings at age 50 does not necessarily mean it’s too late to enjoy a growing passive income in retirement. Certainly, starting to invest as early as possible allows compounding to have a larger impact on the eventual size of your retirement nest egg. But with the FTSE 100 having returned over 16% including dividends in 2019, its long-term growth prospects could be higher than many investors realise.
As such, building a portfolio of FTSE 100 shares could be a good idea. In many cases, there are high yields, low valuations and growth potential available over the long run.
Despite rising by around 12% last year, the FTSE 100 contains a number of stocks that trade on low valuations. There may be a couple of reasons for this. First, the index may be internationally-focused, but it still generates around a third of its income from the UK. As such, the uncertainty created by Brexit from both a political and economic perspective may be weighing on the index’s price level. Investors could be pricing-in the risk of a challenging economic outlook through lower valuations.
Second, the global economy is facing a period of uncertainty. Factors such as US political risks, a trade war between the US and China that is not yet over, as well as geopolitical challenges in the Middle East, are ongoing. With the index having always recovered from its downturns to post fresh highs, now could be an opportune moment to buy a range of FTSE 100 shares for the long term.
As well as it offering a dividend yield in excess of 4%, the FTSE 100 also has dividend growth potential. It has historically recorded an inflation-beating rate of dividend growth, and this looks set to continue in the long run. This may enable you to enjoy not only a higher yield compared to other mainstream assets such as cash and bonds, but to also experience a brisk increase in your income as the world economy continues to offer an improving long-term outlook.
Moreover, with the FTSE 100 containing a range of companies operating in different sectors, it offers a diverse income stream. This could help investors to build a resilient portfolio that reduces the risk of dividends not being paid.
FTSE 100 accessibility
With the cost of building a portfolio of shares and the ease of doing so having improved significantly in recent years thanks to online share-dealing, now could be the right time to start planning for retirement. At age 50, there is still time to benefit from the FTSE 100’s growth potential, while its diverse and improving income prospects could help to strengthen your financial position in older age. Therefore, now could be the right time to purchase a range of large-cap shares to improve your retirement prospects.
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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.