Investing money in shares from age 40 onwards could lead to a surprisingly large ISA nest egg by retirement age. Furthermore, buying the best shares now could allow an investor to beat the performance of the stock market and increase their level of financial freedom in older age.
Clearly, determining the best stocks to purchase today is very subjective. However, a focus on financial strength, strategy and valuations may provide greater scope for capital growth in a likely long-term stock market rally.
Determining the best shares to buy now
Due to the challenging economic outlook, the best shares to buy now are likely to be those businesses with solid financial positions. For example, they may have large headroom when making interest payments on debt, as well as low levels of leverage. Such companies could stand a better chance of surviving what could be a tough period for many sectors in 2021, as the economy comes out of an unprecedented set of challenges.
Furthermore, the most appealing stocks to buy today could be those companies with large competitive advantages. For example, they may have unique products that differentiate them from peers and produce significant customer loyalty. This may provide scope for higher margins over the long run that boost their share price performances.
When the best shares trade at low prices, they may represent attractive buying opportunities. The past performance of the stock market shows that it has always recovered from its lows to post new highs. A similar outcome could be on the horizon for many of today’s high-quality stocks.
Building a retirement portfolio from age 40
At age 40, most people are likely to have a long time horizon when investing in shares. As such, they can look beyond short-term risks to benefit from a likely stock market rally in the coming years. Through buying the best shares now, they may be able to outperform the stock market to further improve their financial prospects for older age.
Even if they match the stock market’s performance, their 25+ year time horizon until retirement provides a substantial amount of time for compounding to work its magic. For example, a £10,000 investment today could be worth £86,000 in 25 years, assuming it matches the 20-year total return performance of the FTSE 250. Similarly, a £500 monthly investment over 25 years at the same 9% annual total return as the FTSE 250 has managed in the last 20 years would produce a nest egg valued at £565,000.
From these amounts, a generous passive income could be drawn that provides a worthwhile supplement to the State Pension. As such, it is not too late to start investing in shares at age 40. And, through buying the best stocks available today at the lowest prices, it is possible to further enhance a retirement income in the coming years.
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.