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£100 a month to invest? I’d buy FTSE 100 shares in a Stocks and Shares ISA to retire early

Peter Stephens
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Investing £100 per month in FTSE 100 shares could help to improve your retirement prospects. The index has historically delivered a strong total return that could catalyse your retirement portfolio.

In addition, the falling costs associated with buying shares could mean that regularly investing £100 per month is a worthwhile move – especially when undertaken in a tax-efficient account such as a Stocks and Shares ISA.

Regular investing

In previous years, buying £100 of FTSE 100 shares may have seemed to be an inefficient move. After all, the commission costs of buying stocks were relatively high.

Now though, regular investing services available at many online share-dealing providers mean that investors can pay as little as £1.50 per trade. This means that buying individual shares in small amounts is becoming a more realistic prospect for investors.

Furthermore, regularly buying units in a FTSE 100 index tracker fund could be even more economical for smaller investors. In many cases, there are minimal charges for purchasing funds, while the ongoing charges can be as low as 0.2% per year.

Tax efficiency

The cost of opening and managing a Stocks and Shares ISA is also relatively low. This means that a wide range of investors can benefit from its tax efficiency to improve their overall returns in the long run.

Although avoiding capital gains and dividend taxes may not be a priority for all investors in the short run, the return prospects of the FTSE 100 mean that it could become relevant for many individuals in the long run. For example, the dividend allowance has fallen to £2,000 per annum over recent years, which means that buying shares in a Stocks and Shares ISA could improve your passive income in retirement.

FTSE 100 return potential

The FTSE 100’s returns could prove to be more impressive than many investors expect. Certainly, the index has risen by less than 10% since its 1999 closing level. But its returns prior to that were far more impressive, with it having risen almost seven-fold in its first 16 years of existence to the end of 1999.

Since the index currently has a dividend yield of around 4.4% and contains a number of companies that appear to trade on wide margins of safety, its future performance could be relatively impressive. Its global focus may mean that it can benefit from the fast-paced growth offered by major economies such as the US and China, which could result in rapidly-rising bottom lines for many of its members.

Early retirement

Clearly, the amount of time you have available to allow your FTSE 100 shares to deliver on their potential will impact on how early you can retire. However, investing £100 per month at the index’s historic 9% annual total return could produce a nest egg of £405,000 over a 40-year timeframe. This could lead to a passive income of around £17,800, which could allow you to retire early.

The post £100 a month to invest? I’d buy FTSE 100 shares in a Stocks and Shares ISA to retire early appeared first on The Motley Fool UK.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Motley Fool UK 2020