No Savings? Drip-feed £500 a month into UK shares and aim to retire comfortably
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Leveraging the power of UK shares is a proven strategy for setting up a more substantial pension pot. Even starting as early as age 40, investors can build attractive portfolios that open the door to a more comfortable retirement.
Since its inception, FTSE 250 Historically, it has provided an average total annual return of 10.2%. That’s even after the recent turmoil in the stock market. And drip-feeding just £500 a month at this rate of return could theoretically lead to a portfolio of £951,951 after 28 years. Let’s find out how.
Thanks to financial and technological innovations, investors are spoiled for choice in 2023.
Brokers competing against each other are offering lower and lower account and trading fees with each passing year. Typical investment vehicles such as stocks and shares ISAs and self-invested individual pensions (SIPPs) help the taxpayer liven up retirement savings. And the rise of index-tracking exchange-traded funds means that even novice investors can replicate the performance of the stock market without much effort.
What’s more, for those looking to pick UK stocks, expert research services such as the motley fool Can help build a successful, or even potentially market-beating, investment portfolio.
index investing vs stock picking
Stock picking is not for everyone. Beyond prerequisite skills and knowledge, it requires immense emotional discipline. The latter can be a fairly rare symptom. And for many long-term investors, staying confident while their portfolio is falling off a cliff can be quite the challenge.
Therefore index investing is by far the more popular strategy. It takes care of diversification as well as portfolio management. And this also means that investors do not need to spend hours poring over financial statements or research reports.
However, there is a caveat. Investing in an index also eliminates the possibility of earning better returns than the market. This is something that can only be achieved by picking individual UK stocks. And suppose an investor can only collect an extra 2% against the FTSE 250? Over 28 years, that’s the difference between £950k and £1.42m!
There is a risk in choosing UK shares
As exciting as the prospect of having £1.42m in the pension pot is, there are no guarantees. A poorly constructed portfolio consisting of bad businesses, or even good businesses bought at the wrong price, can easily destroy rather than create wealth.
Even if an investor has the best UK shares London Stock ExchangeUnfortunately, an unfortunately timed market crash or correction could wipe out retirement savings. at least in the short term. As such, an investor may be worth much less than expected when it comes time to retire.
Nevertheless, given the continuing attacks on the State Pension, individuals should take the necessary steps to safeguard their financial future. And investing wisely in the stock market with a tax-efficient account is, in my opinion, one of the best solutions.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to, nor does it constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decision.
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The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights makes us better investors.
Motley Fool UK 2023