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My Stocks and Shares ISA is filled with listed shares. FTSE 100.
Like legendary investor Warren Buffett, I think big blue chip stocks are a good and safe way to build long-term wealth. The performance of Britain’s premier share index in recent years reinforces the wisdom of such an investment strategy.
Long-term wealth
According to the supplier I.G, The FTSE 100 has produced an average annual return of 7.38% over the past 10 years. This figure assumes that dividends are reinvested. If Footsy had delivered this level of annual return going forward, I could have made a huge pile of money.
Let’s say I have £250 left over to invest in FTSE index shares every month until I retire. If I invested this regularly for 30 years – and reinvested any dividends I received – I would have made a generous £303,515.
Such a large sum could eventually give me a decent income to live on. Let me show you how.
Let’s assume that after 30 years I decide to invest that £300,000+ in dividend stocks. If I bought shares with a 6% dividend yield, I could make an annual income of £18,211.
Combined miracles
I like investing in FTSE 100 shares because I can get a healthy extra income without spending a fortune.
This shows the miracle of compound interest. By reinvesting the dividend or interest I get from day 1, I can charge my wealth by earning more interest on it. as well as On the FTSE 100 shares I buy every month.
I’ll use the £303,515 I made in the example above to show how this works. Of this, £90,000 will be invested in FTSE 100 shares over those 30 years. The remaining £213,515 is pure profit which I would have made amazing by compounding.
How to beat the FTSE 100
By beating that 7.38% FTSE 100 average annual return, I could grow my wealth significantly. But I think I can get better returns by picking individual stocks.
I’m aiming for an average return of 10% and above. And the stock market correction in 2022 gives me an improved chance of hitting this target. This is because I can buy cheap UK stocks today and drive them up in value during a recovery.
Thousands of investors became stock market millionaires in the 2010s. They bought battered UK stocks during the 2009 financial crisis. And they made money as the global economy tanked and stock prices rose.
I hope to repeat their success. This is why I bought like the FTSE 100 shares that fell. Ashtead Group, Rio Tinto, Bunzl And Persimmon In the year I accept that my 2022 plan will face some setbacks and I may lose money. But I feel confident, and that’s why I plan to continue building my portfolio with high Fotsie stocks, despite the uncertain economic outlook.