Image source: Getty Images
Retirement can seem a long way off for many people. A financially savvy worker can turn that long-term timeframe to their advantage and start investing sooner rather than later to help fund their retirement.
For example, if a 40-year-old started today by investing £100 each week in carefully chosen blue-chip shares, I reckon they could grow their wealth and potentially retire early.
Regular saving can help build a sizeable retirement fund
Of course, starting at 30 would be even better than starting at 40 – and at 20 would be even better than at 30!
Unfortunately, though, many of us do not realise that (or have other spending priorities) until it is too late. Even at 40, fortunately, an investor could still make a big difference to their retirement fund if they start investing immediately.
Putting £100 per week into a Stocks and Shares ISA or SIPP and compounding it at 10% annually, after 25 years the investor will have a retirement fund of close to £535k.
That could help them draw an income (for example, via dividends) and retire earlier than otherwise.
Building a quality portfolio of great shares
A goal of 10% might not sound too challenging. After all, FTSE 100 insurer Phoenix Group (LSE: PHNX) currently offers a dividend yield of 10.2% and has been a consistent dividend raiser in recent years. Some other blue-chip shares also offer high yields.
But there are several things to bear in mind. That compound annual growth rate includes good years as well as bad. It also includes capital gain (or loss), as well as dividends.
Phoenix has a generous dividend yield, but its share price has fallen 11% in the past five years.
On top of that, it is always important to diversify across different shares in case one of them disappoints. Over the decades between age 40 and retirement, that is much more likely to happen than it may seem to an investor when they first start investing!
But with the right approach and investing mindset, I think a 10% compound annual growth rate could be achievable.
One share to consider
In fact, I do still think Phoenix is a share to consider for its long-term potential.
The insurance market is vast and is unlikely to get much smaller any time soon, I reckon. With around 12m customers and close to £300bn, Phoenix has a huge business that has proven able to generate large amounts of spare cash. That is helpful when it comes to funding those chunky dividends.
There are risks with all shares, including Phoenix. For example, it has a book of mortgages that include certain valuation assumptions. If a property market slump saw prices fall far enough, those assumptions could turn out to be inadequate, meaning Phoenix may need to revalue the book, hurting profits.
From a long-term perspective, though, I think the proven business continues to have strong potential.
This story originally appeared on Motley Fool
