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Some inventive individuals can stay properly off the passive earnings they earn from royalties from their works. And that’s only one means to assist fund a cushty retirement.
However what likelihood does an artistically talentless nerd like me have? A superb one, I feel. And it’s all as a result of I put money into FTSE 100 shares.
It helps to begin 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, is dependent upon a number 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 at 6.9% yearly. So, as my instance as we speak, I’ll use certainly one 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 might be. And I’m not interested by any share value appreciation. If it will probably make 2% a yr on prime, 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 totally 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 traders should set their goals according to their very own wants and with how a lot threat they’re comfy with.
How a lot do I want?
What different earnings, from pensions, for instance, do we have now? How costly is our way of life, 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 would appear to be a fairly daunting quantity.
But when I may put £1,000 a month into Aviva (and it maintains its 6.9% very yr), I may get there in 15 years. And even when I may handle a extra modest £500 a month, I may nonetheless attain my objective 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 objective. On the identical foundation, I may hit that in simply 9 years at £1,000 per thirty days. Or stretch it to fifteen years at £500 every month.
Choosing shares
Aviva itself, although certainly one 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 companies to endure.
And although the Aviva share value has carried out nicely in 2024, I nonetheless see volatility forward.
However with diversification, I feel it will probably assist me to match these long-term FTSE 100 returns. Or possibly even beat them.
