By the time 40 rolls around, many people start thinking about an exit strategy from work. I know I did. And my plan is to retire rich with shares.
It’s a well-trodden path to take. And the growing army of ISA millionaires in the UK proves people are achieving their aim.
How I’m aiming to retire rich with shares
I reckon starting at the age of 40 from a position of having no savings means there are around 30 years ahead to build a retirement pot of money. It’s achievable, but I wouldn’t want to make too many investment mistakes along the way.
And one question is crucial to success. What shares or share-backed investments should I put my money in? And this is an area where it’s easy to make some big mistakes that could keep me from achieving my goal of retiring rich with shares.
For example, I reckon there are only a few shares of individual companies that could make worthwhile long-term investments. Indeed, many businesses have cyclical operations unsuitable for buy-and-forget investments, in my view.
I’m thinking of enterprises such as the banks, housebuilders, airlines, miners, oil companies and many retailers. They all have operations that tend to ebb and flow according to the prevailing general economic conditions. And there’s a risk a long-term investment could cycle up and down without making much overall progress over 30 years.
The cyclical companies can make decent investments at times. But the investment period needs to be shorter and the strategy active, requiring more portfolio management time from an investor. However, some companies strike me as being more suitable for a long-term investment. And many of them can be found in less cyclical and more defensive sectors. For example, the branded, fast-moving-consumer-goods sector is a good hunting ground. As is healthcare, IT, technology and utilities.
Achieving consistent returns
Indeed, some companies have an impressive record of delivering consistent, cash-backed shareholder returns. Those returns arrive as shareholder dividends and, in many cases, as capital growth from a rising share price. So, if I can find a company operating in a defensive sector and growing its earnings a little each year as well, I could be onto a decent long-term investment.
I’d look at big names such as Unilever, AstraZeneca, Diageo, GlaxoSmithKline and Reckitt Benckiser. All these firms have the potential to become decent long-term compounding machines in my portfolio. As do National Grid, SSE, Smith & Nephew, Bunzl and Sage. And I’d also consider smaller operators such as AG Barr, Cranswick, Nichols and Britvic.
I reckon the best way to build a decent retirement fund with shares is to achieve a decent annualised rate of return. Then to compound those returns and, finally, to add new money at regular intervals. Indeed, for me, a monthly payment into my investment account is ideal because it goes out of my current account as soon as my wages arrive.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AG Barr, Britvic, Diageo, GlaxoSmithKline, Nichols, Sage Group, and Unilever. 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.