If you’ve reached 40 years of age with no pension savings, there’s no need to worry. It’s never too late to start saving for the future. And by using the tips below, I think you could significantly enhance your chances of being able to retire wealthy.
Retire in luxury
Investing in the stock market is one of the easiest ways to grow your financial nest egg in the long run.
Buying stocks and shares isn’t particularly complicated. Today there are plenty of online stockbrokers, which offer trading at a low price.
Most of these online offerings also allow investors to set up a monthly investment plan. This could help automate the process and will enable you to invest in the stock market without having to do any work at all.
This may be the best approach for investors who want to retire in luxury, but don’t have a lot of experience. Selecting individual stocks and shares can be a challenging process. Even the professionals get it wrong regularly. So setting up a regular investment plan via a low-cost index tracker fund or other passive fund instruments could be a good option.
Such a strategy is unlikely to hold back your retirement plans. Over the past 35 years, the FTSE 100 has produced an average return for investors of 8% per annum.
At this rate of return, it would have been possible to turn a monthly investment of £500 into a lump sum of £1.1m. That could be more than enough to retire in luxury.
The prospect of a £1.1m pension pot is alluring to most investors. However, investors could earn a higher return by investing in individual stocks and shares. Some of the FTSE 100’s best companies have produced double-digit annualised returns for investors over the past decade.
For example, shares in distribution company Bunzl have delivered an average annual return for investors of 13.5% over the past decade. My figures suggest that at this rate of return, a monthly investment of £500 could grow to be worth as much as £5m in three-and-a-half decades. Once again, this lump sum would be more than enough to retire in luxury.
Bunzl is not the only stock that has yielded such fantastic returns over the past 10 years.
Global sports betting business, Flutter Entertainment, has yielded an average annual total return of 18% for investors since 2005. On that basis, an investment of £20,000 in the business back in 2005 would be worth £300k today.
These two companies have several qualities in common. For a start, they both are leaders in their respective sectors. This means they have better than average profit margins, and they have been using this money to acquire small peers. This buy-and-build strategy has helped contribute to the returns investors have received over the past 10 years or so.
As such, if you’re looking to grow a large financial nest egg and retire in luxury, it could be a good idea to target companies like Bunzl and Flutter.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Flutter Entertainment. 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.