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invest in FTSE 100 Stocks is a great way to generate passive income for retirement. Many stocks listed in the index pay incredibly generous dividends and aim to increase them every year. That will not only give me a passive income that I don’t have to lift a finger to receive, but one that increases over time, hopefully.
Many companies also offer share buybacks, which is another way to return cash to investors. In fact, AJ Bell believes that when the two are combined, the FTSE 100 is on track to deliver a combined total cash return of 6.6% this year. If I buy shares today, I can lock in this and hopefully see it go up over time.
This is how I would generate passive income
In addition to dividends, there is also an opportunity for the share price to rise. If the FTSE 100 rises, this will protect the value of my portfolio so I won’t deplete it too much by making income withdrawals in retirement.
So it’s FTSE 100 stocks to me, all the time. However, I am also aware of the risks. Dividends can be cut at any time, as we saw both during the financial crisis and in the early stages of the Covid pandemic. That is not the only danger. Even FTSE 100 shares can fall out of favor or even go bankrupt.
This is why my portfolio of FTSE 100 shares will always contain a minimum of 12-15 companies. This will spread the risk so that one or two failures do not cause irreparable damage to the total value of my portfolio.
Investing £1,000 per month is quite a difficult task, especially when the cost of living crisis hits. It adds up to £12,000 a year. Most of us can’t afford to save that much, but investing something is always better than doing nothing.
Summary of reinvested dividends
It’s a useful number to use as a benchmark, to see how my portfolio’s value would increase over time. The long-term total return of the FTSE 100 is around 7% per annum, with dividends reinvested. Someone who started investing £1,000 a month at age 45 would have £576,069 at age 66, before charges.
This is a tidy sum, although inflation means money won’t buy as much as it does today.
Ideally, most people will start saving a lot before they turn 40. Someone who invested £1,000 a month at 35 would have over £1.3m in their portfolio by 66. Now that’s starting to look like serious money, and would certainly be enough to generate a generous passive income.
It would seek to create a balanced distribution of dividend-paying companies, which could include major financial stocks such as fan, barclaysY Lloyds Banking Groupminers like Anglo-American Y red riverand possibly an energy giant like PA either Shell.
home builders like Barratt developments, KhakiY taylor wimpey It would also be on my wish list. Like dividend heroes would british american tobacco, Diageo, TescoY Unilever.
There are more top dividend stocks like these in the FTSE 100, and I would add to them over time. When I got to retirement, I would sit down and start taking those dividends as income.
