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People buy shares for different reasons. Some want to try and earn passive income now, while others hope to build up a nest egg and retire early. With some well-known FTSE 100 shares trading at what I see as very attractive prices, I think drip-feeding money into such shares now could be a way for an investor to try and retire early in future.
Building a nest egg over time
To do that, consider the example of someone who puts aside £500 each month for 20 years. Even just putting it under the mattress, two decades later they would have £120,000. That could help someone bring forward their retirement.
One benefit of putting money under the mattress is that it still ought to have the same face value 20 years later, as long as mice, fire, dampness, taxes, or some other human being have not got to it first.
But face value and actual value are not usually the same thing, due to the corrosive effects of inflation.
Putting money into FTSE shares could help its long-term value grow, helping to fund an earlier retirement.
Building a blue-chip portfolio
While the money under the bed still ought to be there years later, money put into the wrong shares can end up being wiped out.
Diversifying across different shares can help manage that risk. Clearly, choosing the right shares matters too and that is not always easy even for experts.
That is where I think sticking to proven blue-chip FTSE 100 shares can help.
Like any shares, they also can do poorly, but in general I think FTSE 100 shares’ established businesses and expertise can help them weather storms. They may lack the growth prospects of some smaller companies in emerging industries – but the risk profile tends to be different too.
As an example, if an investor starts putting £500 each month into a SIPP today and achieves a compound annual growth rate of 8%, after 20 years it will be worth over £284k.
Hunting for shares to buy
That compound annual growth rate can come from both share price growth and any dividends paid. Shares can go down as well as up in value, though, something that could affect performance.
As an example of a FTSE 100 share I own that I hope could achieve that sort of performance in coming decades, consider Diageo (LSE: DGE).
The Guinness brewer has grown its dividend per share annually for decades. The current dividend yield of 4.2% is above the FTSE 100 average.
By contrast, a share price decline of 30% in the past five years is woeful given that the blue-chip index has moved up 43% during that period.
I see that as a potential opportunity for investors – which is why I bought.
The City is fretting about risks including weak Latin American demand, soft consumption patterns for pricy premium spirits, and long-term declines in the number of younger drinkers. All of those seem like actual risks to me.
More positively, though, Diageo remains massively profitable. It has built a portfolio of premium brands that give it pricing power and it owns unique, iconic distilleries and production facilities worldwide. This week, the FTSE share hit its lowest price in over a decade.
