Even if I had no savings at 30, I think I could still be a millionaire by the time I retire. By investing £1,000 each month in FTSE 100 stocks, I could grow my wealth to £1,000,000 by the time I’m 60.
In fact, there are a few different ways that I could aim for a million. I could either try to do it by looking for companies offering a 7% return today, or by companies that will grow over time.
Dividends
One way of trying to achieve a 7% return is by investing in stocks that pay dividends. If I can find a stock with a dividend yield above 7%, that can put me on track to reach my goal.
Right now, there are some FTSE 100 stocks that fit the bill. Legal & General currently has a dividend yield of 8.6% and Rio Tinto currently yields just over 9%.
With this approach, I’ll need to reinvest the dividends I receive into stocks that are offering 7% dividend returns. And as share prices move around, this might involve buying different stocks.
The biggest risk with this approach is that a company might pay out less in dividends in the future than it does today. If that happens, then I might start to fall short of my target.
To cover this risk, I’d look to do a couple of things. One is to invest in companies that are likely to maintain their dividends and the other is to spread my investment across a number of stocks.
Legal & General, for example, has increased its dividend steadily over the last decade. Even during the pandemic, its payouts to shareholders remained fairly stable.
Growth
The other way of aiming for 7% each year is by looking for companies that will grow. These businesses aren’t looking to pay out their earnings – they’re looking to reinvest it to make more.
In general, these companies aren’t offering a 7% return today. But the idea is that their earnings will grow over time and they will achieve that on average.
Croda International and Spirax-Sarco Engineering are both FTSE 100 stocks that have this profile. Neither offers a 7% return right now, but I think both have attractive prospects.
Right now, I think Croda stock offers a 1.42% return and Spirax-Sarco is around 1.83%. That’s well short of the 7% I’m aiming for on average, but with 30 years of investing ahead, time is on my side.
In order to achieve a 7% return on average, I’d need these businesses to grow their earnings at an average of 6% annually. And I think that’s well within what can be achieved.
Retiring as a millionaire
There are several ways I could be a millionaire in 30 years even if I start with no savings. The FTSE 100 has plenty of stocks that I think can help me achieve my aim.
The key to this approach is making sure that I invest that £1,000 every month. Over time, compounding my returns, I can get to £1,000,000 before I retire.