This is how a £ 100k sipp could become a sipp of £ 1m+ in 30 years

As a long -term investor, a SIPP naturally attracts me as an investment platform.

After all, a personal pension is something that many people contribute for decades, and that in turn could help finance retirement in the course of decades.

With the right approach, I think it is possible for an investor to convert a sipp of £ 100k into one that is worth more than 1 million in just three decades.

So, someone thirty today who puts £ 20k ​​a year in a SIPP over the next five years could retire with a SIPP valued at more than one million pounds.

How did I calculate? Simple: compose £ 100k at 8% per year for 30 years would mean that the SIPP grows in value to £ 1m.

Pointing to constantly strong performance

By the way, if that compound annual growth rate was a little higher (9%), the same time frame would turn £ 100k into £ 1.3 million. The compound is really powerful, especially in a long term.

But I will keep the figure of 8%, since it can be achieved more easily. It may not sound much: the Ftse 100 It has increased 13% only in the last year, in addition to offering a 3.4% dividend yield.

However, we are talking about an annual growth rate composed for 30 years, and some of those years can be very bad in the market.

Even taking the rude with the soft, I think 8% is attainable. It could come from a combination of capital and dividends growth.

Maybe an action could fulfill it, but that approach is unnecessarily risky. With £ 100k, a SIPP would have a wide range for diversification and any smart investor would adopt that approach.

Some of the chosen actions would work better than others over time. But the point is to focus on buying a mixture of actions at attractive prices in outstanding businesses that have long -term promising commercial perspectives.

Is a bargain diagnosed within 30 years?

To illustrate, a part in my sipp is Diageo (LSE: DGE).

At first glance, it may seem a strange choice to try to demonstrate my previous approach. In the last five years, the price of diageo shares has fallen by 30%.

The dividend yield has been more reassuring, with the payment per share that grows annually for decades. However, although the 3.7% yield is attractive, taken together with the decrease in the price of shares, it is far from the annual growth of 8% compound I discussed.

However, past performance is not necessarily a guide what to expect in the future.

Diageo is going through a difficult patch. While Guinage Sales have increased, many of the company's liquor brands have been finding the current market conditions difficult. They could become more difficult, because consumers are accumulating in spending and younger generations drink less alcohol than their ancestors.

Even so, I think the alcohol market will remain strong in the long term. The Premium Diageo brand portfolio gives it price power. That helps are the gain margins and the generation of cash, in turn finance the dividend.

Their brands and facilities, such as Talisker Distillery, are unique assets, which give diageo what I think is a sustainable competitive advantage during the next decades. That is why I have been buying what I see as a blue chip bargain for my sipp this year.