Given the recent sell-off in the bond market, the yields have become increasingly attractive. For example, a two-year UK government bond current yields 4.18%. There’s merit in me having a multi-asset portfolio that includes bonds, commodities and other assets aside from just stocks. But when trying to figure out what could best push me towards early retirement, I think these FTSE 100 stocks are still the way to go.
Outperforming via growth
Over a long period of time, the returns from growth stocks have beaten the returns from bonds. I get that over the past few months, growth stocks have performed badly. That’s simply a reflection of the stage of the economic cycle that we’re in.
Where the outperformance comes is during the recovery and boom phases of the cycle. Given the outlook for the UK economy, I don’t see this happening in 2022. However, this isn’t stopping me from buying growth stocks now. Several are trading at relatively cheap levels, representing a good long-term buying opportunity. I recently wrote about Admiral and Rightmove, two FTSE 100 shares that are down at least 25% over the past year.
In the short term, these stocks might fall further. But when I’m considering stocks versus bonds and other assets over a five- or 10-year timeframe, I struggle to see how growth stocks don’t come out on top.
An income strategy for early retirement
Despite the jump in bond yields, the average FTSE 100 dividend yield is almost the same at 4.17%. Yet this is just the average. I can find good companies that offer yields in the 5%-7% range that I don’t think are high-risk. These include the likes of Kingfisher and National Grid.
If I can put away £200-300 a month and invest in solid income payers, it could help me to an earlier retirement age. For example, let’s say I invest £250 each month for the next 20 years and reinvest the dividends I receive. If I manage to get an average portfolio dividend yield of 5.5% over this period, I’d have a pot at the end worth almost £110,000.
From then on, I could enjoy the income of £6,050 per annum, without investing a penny more. This isn’t enough for me to live off, but it certainly goes a long way to helping me to wind down my work earlier.
One point I need to remember is that trying to forecast future dividend income is very hard. Just because a business pays a dividend this year doesn’t mean it’ll continue to pay it for the next decade and beyond.
FTSE 100 stocks still in vogue
That said, and despite the move in bonds, I still think that FTSE 100 stocks are the way forward for me to reach my goals. I’m looking to add the above shares mentioned going forward.