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Since February 2020, the FTSE 100‘s grown (with dividends reinvested) by an average annual rate of 7.4%. I’m one of those people who’s benefitted from this increase. For several years now, I’ve been buying ‘blue-chip’ stocks to help fund my retirement.
But to my surprise it’s estimated that only 10% of Footsie shares are owned by pension funds. Despite this, I still believe the UK stock market offers excellent value for money.
FIRE
In 1992, a book was published, Your Money or Your Life, which claimed that — by making a number of sacrifices — it was possible for people to leave the workforce in their 30s or 40s. This doesn’t necessarily mean retiring. It’s all about giving people the choice of whether to work or not.
One of the ideas put forward is known as FIRE (financial independence, retire early). This involves saving or investing at least 50% of annual income. Apparently, it’s now gaining popularity via TikTok.
Good in theory
I’m going to test this concept by looking at the FTSE 100 and considering a ‘typical’ person.
According to Finder, the average UK adult, living in a city, has £11,268 of annual disposable income. Investing half of this each year (£5,634) for 20 years — at an annual growth rate of 7.4% — would generate an investment pot of £259,168.
Although impressive, I don’t think it’s enough to retire early.
However, in my opinion, this doesn’t mean we should reject the idea of saving and investing. Instead, I think it’d be better to invest less for longer. That way it’s possible to get a more sustainable balance between living and saving to invest. This might not lead to an early retirement but it’d be a comfortable one.
Of course, buying shares carries some risks. There’s no guarantee that past growth rates will be repeated. However, history suggests that it’s possible to generate wealth by buying UK equities and taking a long-term view.
One idea
Those looking for a FTSE 100 stock to include in a well-balanced portfolio could consider buying shares in International Consolidated Airlines Group (LSE:IAG).
The group owns five airlines, including British Airways and Iberia, and is well positioned to benefit from the anticipated growth in air travel over the coming decades. The International Air Transport Association is predicting 4.1bn more passengers each year by 2043.
Its brands span the premium and low-cost markets, helping it to avoid overexposure to one particular segment.
At the moment, British Airways has approximately 50% of the slots at Heathrow. The government’s recent decision to allow further expansion at the airport has been welcomed by International Consolidated Airlines’ directors.
However, airline stocks can be risky. The group’s last annual report identified 58 risk factors covering everything from non-compliance with laws and regulations to strikes and an IT meltdown.
Airline stocks are particularly vulnerable to rising fuel and staff costs. In the US alone, over the past four decades, 84 airlines have either gone bust or applied for bankruptcy protection.
But International Consolidated Airlines’ balance sheet remains robust. And its shares have a lower price-to-earnings ratio than the average of the world’s other listed airlines. Also, its 2024 results showed that its post-pandemic recovery is continuing. Its earnings comfortably beat analysts’ expectations.
For these reasons, those looking to build a decent retirement portfolio could consider International Consolidated Airlines shares.
