I go for FTSE 100 shares to try to build up some cash, and right now I’m seeing some great-value buys.
The Pensions and Lifetime Savings Association (PLSA) has just hiked the income it thinks we need for a comfy old age, and I’m looking more closely at them.
The PLSA now reckons we need around £31,300 a year for a moderate living standard. Ouch!
Long-term safety
So I want to think about how best to get close to that. Or even better. Some might look for big short-term gains. And maybe put all their money on the next stock they see being touted as a sure-fire multibagger.
But I wouldn’t go near that. I expect some years to be poor, and to get my fair share of losers along the way. In fact, I don’t think anyone should buy shares unless they plan to be in it for at least 10 years. Or, even better, 20 or more. And spread the risk.
FTSE 100 shares
The FTSE 100 has delivered long-term average returns of around 7.5% a year. And, right now, it looks undervalued to me. Is I do think this could be a great time to get started for the long term, and we might even see returns above average in the next decade.
If I put my monthly £500 into FTSE 100 shares and it keeps on growing at 7.5% a year, it could take about 36 years to reach a million.
That’s more time than I have before I retire, so I’d need to get better returns (or invest more). But young people starting out today could do it. And a million would be way more than I’d need to drawn down that £31,300 a month.
My top picks
What shares would I buy? Legal & General (LSE: LGEN) would be on my list.
I like insurance stocks. They can be cyclical, and I’d say the need to hold for the long term is even more important with them. But they can also generate very nice cash flows and pay good dividends.
Legal & General is on a yield of 8.1% at the moment. Cover by earnings should be a bit tight, so there’s some risk there. But forecasts are getting better.
With earnings set to rise, I think we might see some share price gains too. Could I see a total return of 10% a year? If I did, I could build up enough for that £31,300 annual income in less than 20 years. And I could even reach a million in 30 years.
Diversify
However, another tough spell for financial stocks could damage any Legal & General returns. And I see a fair chance of that. It makes diversification an essential for me.
Looking at other FTSE 100 dividend stocks, I see British American Tobacco with a 9.5% yield. Then there’s Glencore on 8.9%, and M&G up at 9%.
I see a wide choice of FTSE 100 stocks that I think could get me my £31,300 a year. And maybe even on to that million.
