Different people have their own ideas when it comes to how they can build wealth. One approach I feel makes sense for me is benefiting from the hard work and proven success of existing businesses. That is why I think investing steadily in a diversified range of FTSE shares could help me grow richer over time.
Here is why and how I would go about it.
The appeal of FTSE shares
The FTSE indices, such as the FTSE 100 and FTSE 250, essentially consist of the companies with the largest market capitalisations on the London stock exchange.
Size is not necessarily an indicator of success. Sometimes a company in a mature industry can generate large revenues but only slim profit margins. Also, there is a difference between what a company is objectively worth and what the market collectively thinks it is worth, which is its market capitalisation. Just because a company has a big market capitalisation does not always mean that it is financially successful when it comes to things like profits.
In broad terms, however, I see the FTSE 100 as a collection of large, well-established businesses that have mostly proven their business models over the course of time. By owning not just one such share but a cross-section, my portfolio becomes more diversified. So even if one FTSE share I invest in turns out to be disappointing, the impact on my portfolio overall should be limited.
Choosing the right shares for me
Still, not all FTSE shares are created equal.
Some are still very much in the growth phase of their development. Others are in mature industries, potentially even in their sunset years, but provide me with attractive income opportunities. That is why I own FTSE shares like tobacco company Imperial Brands.
I think both types of FTSE shares could hopefully help me build my wealth over time. In the case of growth shares, that could come from share price appreciation as the companies grow their profits. The price of income shares may also move up over time, or indeed down. But my focus when buying them would be less on the potential for capital gain than passive income streams.
If I compounded the dividends I received, I could hopefully grow my wealth faster than if I took them out as cash. Compounding just means reinvesting dividends in more shares. Doing that, the dividends from my portfolio of FTSE shares could effectively start to earn their own dividends!
Long-term wealth building
By investing in a diversified range of growth and income shares from across the FTSE indices, hopefully I might build my wealth over time while also managing my risk.
£50 a week adds up to over £2,500 a year. That is more than £25,000 in a decade I could invest, even before taking into account reinvesting dividends or the capital gains I might earn from each of the shares I buy. If I am patient and take the long-term view of investing, I am hopeful that such an approach could turn out to be financially rewarding.