Here at The Motley Fool, we believe it’s never too late to start investing. Here’s how a 40-year old with nothing saved for retirement could begin building long-term wealth.
1. Open a tax-efficient product
The first thing to think about is opening one or more investing products that are designed to eliminate tax. Such savings on capital gains and dividend income can be reinvested, allowing compound growth to really start to accelerate.
In the UK, the Stocks and Shares ISA (and to a lesser degree, the Lifetime ISA) is a popular product that shields returns from taxes. I hold each of these alongside the Self-Invested Personal Pension (SIPP), which offers the same benefits.
Be mindful, however, that each of these products may have strict rules on things like annual contributions and the age at which money can be drawn down.
2. Diversify for strength
The next thing to consider is diversifying across a range of companies. If done effectively, it can allow investors to reduce risk while simultaneously targeting a multitude of growth and income opportunities.
Reflecting this powerful blend, esteemed economist Harry Markowitz once described diversification as “the only free lunch in investing”.
Investors could, for example, spread the cash across 15-20 companies, funds, and trusts including the likes of Lloyds Bank, defence contractor BAE Systems, hobby stock Games Workshop, and telecoms provider Vodafone.
This small grouping alone provides diversified exposure to a range of different sectors and geographies.
3. Mix it up
Even with these strategies in place, focusing solely on UK shares can compromise long-term wealth creation. Adding in some overseas shares from stronger and faster-growing economies can counter this limitation.
In particular, I like the idea of adding some US shares into the mix. The following table illustrates why:
| US/UK share index | 10-year average annualised return |
|---|---|
| S&P 500 | 12.3% |
| FTSE 100 | 6.3% |
| FTSE 250 | 4.3% |
As you’ll see, the S&P 500 index of US shares has delivered almost double the return of the FTSE 100 over the last decade. The difference with the FTSE 250 UK mid-cap index is even greater.
While past performance isn’t always a reliable guide to the future, I think US stocks could keep outperforming. And so F&C Investment Trust (LSE:FCIT) could be a top financial vehicle to consider.
This Footsie-listed investment trust has £6.1bn worth of assets divided among almost 400 global shares. Some 62.4% is invested in North American equities and 10.3% in UK stocks. The remainder is spread across other territories like Mainland Europe, Japan, and Asian emerging markets.
With a high weighting of cyclical tech stocks like Nvidia and Apple, the trust could underperform during economic downturns. Yet, as we’ve seen over the last decade, it also provides scope for significant growth as the digital economy rapidly expands.
F&C Investment Trust has been a solid pick for growth and dividends since its creation 150-plus years ago. Since 2015, its share price has risen at an average annual rate of 9.9%. It has also raised dividends for 58 years on the spin.
