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Lots of people dream of building wealth over the years and decades. Different people each try their own way to do that. One approach is to invest in a portfolio of blue-chip FTSE 100 shares.
That is potentially a lucrative way to build wealth over time. Here is how.
Building wealth with blue-chip shares
To illustrate, imagine someone tucks away £300 each month into a Stocks and Shares ISA, share-dealing account, or SIPP.
Without doing anything else, that would add up to £36,000 per decade. So, doing it for 30 years would mean they had saved up £108,000.
However, putting aside money on a regular basis is just one element of how such an investor may seek to build wealth.
Another is the growth in the value of FTSE 100 shares they buy. And another is dividends those shares pay along the way.
While FTSE 100 shares are often successful businesses with proven models, like any shares they can lose as well as gain value – and dividends are never guaranteed. So careful selection of a diversified range of shares always matters, even among blue chips.
What might the effect be? Imagine that a combination of share price movements and dividend yields allow an investor to achieve a compound annual gain of 10%. At the end of the 30 years, contributing the same £300 per month, their portfolio would be worth over £619k. Not bad at all!
Finding shares to buy
The theory may sound simple enough – but what about the practice?
Just because a share is in the prestigious FTSE 100 index does not necessarily mean it will do well. After all, shares get into the index because of how they have done in the past – but that is no guarantee of future performance.
When buying shares of any kind, I look for great businesses selling for an attractive price. So, for example, I would be willing to buy into FTSE 100 companies like Unilver and Spirax – but not at their current share price.
One business that does attract me at its current price, by contrast, is Bunzl (LSE: BNZL). I have bought shares in the packaging supplier this year precisely because I think the share price offers potential value.
The price has fallen 23% over the past year. That reflects investor concerns that the firm’s long-term trend of growing through acquisitions may be fizzling out.
Last year saw revenues fall, for the second year in succession. Net profit fell 5% too. Risks including wage inflation and higher shipping costs threaten to eat into profits.
That means that Bunzl now trades on a price-to-earnings ratio of 12. I see that as attractive for a company that has proven over the long run it knows how to make money.
It has a large customer base, extensive supplier relationships, economies of scale, and a proven business model in a sector where there are still plenty of acquisition opportunities.
Bunzl has been going through a rough patch, but I remain upbeat about its long-term business opportunities.
This story originally appeared on Motley Fool
