My Stocks and Shares ISA is packed with stocks that are listed on the FTSE 100.
Like legendary investor Warren Buffett, I think large blue-chip stocks are a great and reliable way to generate long-term wealth. The performance of Britain’s premier share index in recent years reinforces the wisdom of such an investing strategy.
Long-term wealth
According to trading provider IG, the FTSE 100 has delivered an average annual return of 7.38% over the past 10 years. This figure assumes that dividends are reinvested. If the Footsie were to provide this level of yearly return going forwards I could stand to make a big pile of cash.
Let’s say that I have a spare £250 to invest in FTSE index shares each month until I retire. If I were to invest this regularly for 30 years — and to reinvest any dividends I received — I’d have made a generous £303,515.
A big sum like this could eventually give me an excellent passive income to live off. Let me show you how.
We’ll assume that, after those 30 years, I decided to invest that £300,000+ in dividend stocks. If I bought shares with a 6% dividend yield I could make a yearly passive income of £18,211.
Compound miracles
I love investing in FTSE 100 shares because I can make a healthy additional income without having to spend a fortune.
This reflects the miracle of compound interest. By reinvesting the dividends or interest I receive from Day 1, I can turbocharge my wealth by earning additional interest on this as well as on the FTSE 100 shares I buy each month.
I’ll use that £303,515 that I made in the above example to show how this works. Some £90,000 of this is what I’d have spent to acquire FTSE 100 shares over those 30 years. The remaining £213,515 is the pure profit I’d have made through the wonder of compounding.
How I’d try to beat the FTSE 100
By hitting that 7.38% FTSE 100 average annual return, I could significantly boost my wealth then. But I think that through individual stock-picking I can make an even better return.
I’m aiming for an average yearly 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 shares today and watch them soar in value during a recovery.
During the 2010s, thousands of investors became stock market millionaires. They bought beaten-down UK shares around the time of the 2009 financial crisis. And they made money as the global economy bounced back and share prices soared.
I hope to replicate their success. It’s why I’ve bought fallen FTSE 100 shares like Ashtead Group, Rio Tinto, Bunzl and Persimmon in 2022. I accept that my plan my face some setbacks and I could lose money as well as make it. But I feel confident, and it’s why I plan to continue building my portfolio with top Footsie shares, despite the uncertain economic outlook.
The post Why I’ve bought FTSE 100 stocks to target £18,211 passive income for life! appeared first on The Motley Fool UK.
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Royston Wild has positions in Ashtead Group, Bunzl, Persimmon, and Rio Tinto. The Motley Fool UK has recommended Bunzl. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.