Picture supply: Getty Photographs
Some artistic individuals can stay properly off the passive earnings they earn from royalties from their works. And that’s only one approach to assist fund a cushty retirement.
However what likelihood does an artistically talentless nerd like me have? A very good one, I feel. And it’s all as a result of I spend money on FTSE 100 shares.
It helps to start out as early as doable in life, and put away as a lot as we will every month. However how a lot, and the way lengthy we have to do it, will depend on a couple of issues. My two key ones are what sort of earnings I feel I’ll want, and what annual returns I would have the ability to handle.
Lengthy-term returns
Over the previous 20 years, the common FTSE 100 return has are available in at 6.9% yearly. So, as my instance right this moment, I’ll use one in every of my long-time favorite dividend shares, Aviva (LSE: AV.). I select it as a result of it has a forecast dividend yield of… 6.9%.
That’s not assured, as dividends by no means will be. And I’m not serious about any share value appreciation. If it could possibly make 2% a yr on high, I can consider that as an inflation adjustment.
In actuality, I’d by no means put every little thing into one inventory. I’d unfold my cash throughout completely different dividend shares in several sectors for some diversification. And I hope to have the ability to match that historic 6.9%.
I feel Aviva is a good instance for me to make use of. Particular person buyers should set their goals consistent with their very own wants and with how a lot threat they’re comfy with.
How a lot do I would like?
What different earnings, from pensions, for instance, do now we have? How costly is our life-style, and the price of residing the place we stay? They will all affect what we have to obtain.
If I needed to focus on a passive earnings of £20,000 from an annual 6.9% return, I’d must construct up a pot of round £290,000. And that might seem like a reasonably daunting quantity.
But when I might put £1,000 a month into Aviva (and it maintains its 6.9% very yr), I might get there in 15 years. And even when I might handle a extra modest £500 a month, I might nonetheless attain my purpose in 22 years.
Or if I solely needed £10,000 a yr so as to add to no matter different earnings I’ve, I’d must set a £145,000 purpose. On the identical foundation, I might hit that in simply 9 years at £1,000 monthly. Or stretch it to fifteen years at £500 every month.
Choosing shares
Aviva itself, although one in every of my favourites, is within the monetary sector. And we’ve seen how powerful that may be. In any shaky financial instances, I’d count on financials like banks and insurance coverage corporations to undergo.
And although the Aviva share value has finished effectively in 2024, I nonetheless see volatility forward.
However with diversification, I feel it could possibly assist me to match these long-term FTSE 100 returns. Or perhaps even beat them.
