Generating a second income in retirement may become increasingly crucial for many people. The State Pension is unlikely to provide financial freedom in older age, currently amounting to just £8,767 per year.
While saving money is a sound first step, the interest rates on products such as Cash ISAs suggest they’re unlikely to produce a substantial nest egg for retirement.
As such, buying a range of FTSE 100 shares could be a better idea. Here are two large-cap shares that could offer improving total returns and, in doing so, may boost your retirement prospects.
The recent trading update from consumer goods company Unilever (LSE: ULVR) showed it continues to experience strong growth in emerging markets. They delivered an underlying sales growth rate of 5.1% in the company’s third quarter. Since around 60% of its revenue is derived from emerging economies, the growth prospects of the business remain impressive.
Unilever is investing in its direct-to-consumer channels. This could lead to higher margins and a larger proportion of recurring revenue. The end result could be a more stable growth rate over the coming years that allows the company to trade on a higher valuation.
Certainly, there are risks ahead for global consumer goods companies. A continued trade war between the US and China could, for example, lead to a reduction in the growth rate of global GDP.
However, with Unilever’s share price having declined by 14% over the last 10 weeks, investors appear to be factoring in such risks. This could make now an opportune moment to buy a slice of the business, with its long-term growth prospects appearing to be bright.
Smith & Nephew
An uncertain economic outlook could make healthcare companies such as Smith & Nephew (LSE: SN) more attractive to investors. Naturally, risks such as Brexit and a weak outlook for the eurozone economy may mean that investors become increasingly risk averse, while the prospects for GDP growth may deteriorate.
Defensive companies such as Smith & Nephew that are less reliant on the performance of the wider economy than some of their more cyclical FTSE 100 peers could become increasingly popular. This could lead to higher demand for their shares, thereby producing capital growth over the coming months.
Furthermore, Smith & Nephew appears to be well-placed to benefit from demographic changes, such as an ageing global population. This could produce more favourable operating conditions for the business that act as a catalyst on its top and bottom lines.
The company’s recent quarterly update highlighted its improving financial performance. Although a change in CEO may mean there’s a transitional period ahead, its long-term growth prospects appear to be bright relative to many of its FTSE 100 index peers. Therefore, it could well offer improving returns that boost your retirement nest egg.
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Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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 2019