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Here’s how I’d invest in the best shares now to make a £30k passive income in retirement

Peter Stephens
·3-min read
A person holding onto a fan of twenty pound notes
A person holding onto a fan of twenty pound notes

Investors will have differing views on what are the best shares to buy now. However, they’re likely to share common traits. For example, they could be financially-sound businesses that have a competitive advantage over their sector rivals. Similarly, they may have low valuations given their financial prospects that provide scope for capital growth over the long run.

Buying such businesses on a regular basis over a long time period could lead to a generous nest egg. And that would provide a surprisingly large passive income to draw on. As such, investing in them now could be a logical move.

Identifying the best shares to buy now

As mentioned, the best shares to buy now could be those companies with solid financial and market positions. The global economy is currently experiencing a hugely difficult period as a result of lockdowns imposed in response to coronavirus.

This could mean the financial performances of many businesses suffer in the coming months. Financial strain may mean those companies with low debt and access to liquidity may stand a better chance of surviving to benefit from a likely economic recovery.

Similarly, stocks with competitive advantages may fare better than their peers in 2021. For example, they may have unique products or a lower cost base that allows them to generate higher sales and/or margins than rivals.

This may help them to survive short-term difficulties, as well as strengthen their earnings potential over the long run through increasing market share. Over time, they may deliver higher share price returns than market peers.

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Retiring on a worthwhile passive income

The best shares to buy now are also likely to be those companies trading at attractive prices based on their long-term financial prospects. Many sectors such as financial services, retail and hospitality are trading at low valuations versus their long-term averages based on the challenges they face today.

However, they may be able to deliver improving financial performances that make today’s valuations seem extremely low. Buying them while they trade at low prices may provide scope to outperform the wider stock market.

Even if an investor matches the stock market’s returns in future, they could obtain a surprisingly large passive income in retirement. The FTSE 100 has delivered an 8% annualised total return since inception in 1984.

Assuming the same return on a £500 monthly investment over a 30-year time period would produce a nest egg valued at £750,000. From that, a 4% annual withdrawal would mean a £30,000 income.

However, by investing in the best shares now, it’s possible to obtain a higher rate of return than the stock market over the long run. This may produce a larger nest egg in older age. And that could mean a more generous passive income in retirement.

The post Here’s how I’d invest in the best shares now to make a £30k passive income in retirement appeared first on The Motley Fool UK.

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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 2021