Can withdrawing £500 a month from the FTSE 100 make someone a millionaire?
Image source: Getty Images
The tortoise and the hare both have a role to play when it comes to the stock market. Some analysts focus on the rabbits that seem to be interested in high growth stocks. But the FTSE 100 A guide to Britain’s best multi-turtle business, those businesses that have been established and grown steadily.
However, for someone who takes a long-term approach to investing, it can still present a significant opportunity to build wealth over time.
Three important elements
That’s because such an approach can benefit from three advantages. The first is regular donations. Putting a certain amount of money into an investment vehicle on a consistent basis can compound over time.
A second useful feature is what is known as integration. This is when the money earned starts to earn more money. For example, someone may use dividends to buy more shares, which, in turn, may receive more dividends – and so on… Capital gains can also help compound.
The third factor is buying high-performing stocks. That is art not science. But if the portfolio puts in decent performance each year on average, over time that helps return.
So the FTSE 100 may not be part of the stock market prejudice, but its focus on large and often well-established businesses means that, over the long term, I expect it to do well.
For example, over the past few decades, the FTSE 100 has produced an average annual total return (including dividends and capital gains, less capital losses) of about 6.3%. After investing £500 a month compounded at 6.3% per annum, the portfolio will be worth more than £1m in 50 years.
But 50 years is a long time to wait to aim for a million, I see. So a big donation can speed things up.
To reduce costs
Over time, fees, costs, commissions and taxes can eat into most profits. It therefore pays to take the time to compare different share management platforms, including share management accounts, Shares and Shares ISAs and trading applications.
Buying an index – or individual stocks?
An investor can simply ‘buy the index’, by investing in a tracker fund.
Past performance is not necessarily a guide to what will happen next, but I think a 6%+ annual return from the FTSE 100 over the coming decades is a realistic expectation.
But an investor can try to do better by putting together a portfolio of some carefully selected FTSE 100 stocks.
For example, there is one FTSE 100 share that I think investors should consider Bunzl (LSE: BNZL). The food services company has had a tough time with its share price down 18% in five years.
The City doesn’t like Bunzl’s idea of going down in 2026. As a long-term investor, I continue to think that the company has strong growth prospects in the coming years.
That reflects risks such as inflation in profits and taxes that raise the price of imported goods. These are still risks. But the company has a proven long-term business model, growing through multiple acquisitions in an increasingly fragmented market.
Demand for food items such as boxes and serviettes is strong. I think Bunzl’s future remains promising.
