Being able to retire early is the dream of many investors. I believe it’s possible to achieve this goal with a simple saving and investing plan. Today I’m going to explain how I plan to use the FTSE 100 to get rich and retire early.
Owning the FTSE 100
According to my calculations, it is relatively straightforward to build a large pension pot. All you need is a set savings and investment plan. Once this is in place, it is imperative to stick to the programme and let the power of compound interest do its work.
Compound interest is the principle of your money making money. For example, £100 invested at an interest rate of 5% for 10 years would grow to be worth £165. Of this total, £65 is the money your money has earned. It is a simple as that.
Thanks to the power of compound interest, it can be relatively straightforward to build a life-changing sum of money with minimal effort.
Over the past 35 years, the FTSE 100 has produced an average total return for investors of around 8% per annum. On this basis, £1,000 invested in the index three-and-a-half decades ago, would be worth £16,300 today. The initial investment of £1,000 would have earned £15,300 of interest during the time frame.
A little every month goes a long way
In my opinion, the best way to make the most of the wealth-creating power of the stock market is to set-up a regular investment plan. Following this strategy requires minimal effort.
Investors only need to choose an investment to buy and set up a direct debit. Then they can sit back and watch their money grow.
Going back to the example above, if an additional £100 were added every month to the initial £1,000 FTSE 100 investment, the pot would be worth just under £250,000 after 35 years. That’s a big difference.
You don’t need to be a stock market whizz kid or millionaire to follow this strategy. Most online share-dealing brokers now offer regular investment plans, with monthly contributions starting from as little as £25.
I firmly believe that this is the best way to build a sizeable financial nest egg. Once the investment and savings plan is set up, all you need to do is make sure you are saving enough to invest every month. The stock market and compound interest will then take care of the rest.
The bottom line
So that’s how I plan to get rich and retire early by using FTSE 100.
Anyone can follow this strategy, although the figures will vary from person to person. Some investors might want to put away more every month to build a larger final pot.
That’s fine, as long as you have a target in mind. The principles of regular investing and compound interest will continue to apply no matter how much or little money you decide to contribute every month.
The post How I plan to use the FTSE 100 to get rich and retire early appeared first on The Motley Fool UK.
Rupert Hargreaves 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