Generating a rising passive income in retirement could be a realistic goal – even if you have no savings at age 50. The FTSE 100’s 16% total return in 2019 highlights the growth potential that can be provided by the stock market.
As such, now could be the right time to buy a range of large-cap shares to boost your chances of enjoying financial freedom in older age. Despite its surge in the last 12 months, a number of FTSE 100 shares appear to offer growth potential at a reasonable price. They may also provide a generous income in the long run that beats inflation.
Since most people aged 50 are likely to have a long time horizon until they choose to retire, they may wish to focus their capital on riskier assets such as shares. Certainly, they may be more volatile than assets such as cash and bonds. However, in the long run they may provide higher returns. And with a long time horizon, there is likely to be sufficient time for a recovery from a bear market or recession.
At the present time, the FTSE 100 appears to offer numerous opportunities to generate an impressive total return. Its performance in 2019 may have been exceptional, but its 9% annualised total returns since inception in 1984 highlight that the index has a solid track record when it comes to generating growth.
With many investors adopting a cautious stance at the present time due to risks such as Brexit and a global trade war, many large-cap shares trade at a discount to their intrinsic value. This could mean that their returns are highly impressive over the coming years, which may enable you to generate a sizeable nest egg by the time you retire.
Passive income opportunity
As well as its growth potential, the FTSE 100 also offers an impressive income opportunity. Around a quarter of its members have yields that are above 5% at the present time. In many cases, they are expected to produce strong bottom-line growth, which could enable them to grow dividends at a faster pace than inflation.
This could mean that you gradually build a nest egg capable of providing an attractive income in older age – especially when compared to the low returns that are available on other assets such as cash and bonds.
With it being simple and relatively cheap to start investing in the stock market, now could be the right time to start buying FTSE 100 shares. They may have experienced rapid growth in the past year, but that could continue, and their track records and valuations suggest that further upside may be on offer. In time, they could make a significant contribution to your retirement plans – even from a standing start at age 50.
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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