Sitting down at your kitchen table, you realise you have about 30 years before you reach retirement age.
What's the game plan? To have at least $1.5 million in portfolio value?
More is better, but if you shoot for $1.5 million, you'll more easily hit $1 million conservatively.
Just by doing this much, you will have probably done more than what most people do because they don't even set a target to head towards. But we've got more to do.
Assuming that you have dutifully saved up $20,000 to start your portfolio, to hit $1.5 million in total value, you will need to –
– invest the initial $20,000,
– invest $900 monthly at 8.5% interest compounded annually and
– reinvest all proceeds back into the portfolio for the 30-year period.
Do this and you could exceed $1.5 million in total value. The compounding power earns interest on interest- the secret to long-term investing.
It's a long time to build up a fortune, but it is possible. And 8.5% is not too outrageous of a rate to attain, either. That's why you can start your wealth creating plan with good stocks paying high yields like the kind I have below.
Remember, it's the dividend yield plus any share price gains, so if you can get a 5.00% yield fully franked, you only need the stock to go up by at least 3.5% over a whole year. For quality stocks, that's not usually asking too much. If you can exceed the total 8.5% mark, you will end up either hitting the target earlier or racking up an even bigger total over the 30 years!
— Insurance Australia Group Limited (ASX: IAG)
Australia's market leader in general insurance operates with such brands as NRMA Insurance, CGU and SGIO. Not only does it offer a very attractively 5.8% dividend yield fully franked, it has a good track record of raising dividend payments over the past five years. That could offer great advantages for long-term investing.
— Coca-Cola Amatil Ltd (ASX: CCL)
The Australian bottler and distributor of the world's most famous soft drink (as well as other soft and alcoholic beverages) has potential long-term competitive advantages that investors could benefit from. Its yield is a partially franked 5.4%. Stocks with strong brand name appeal are usually good for portfolios.
— Australia and New Zealand Banking Group (ASX: ANZ)
The third largest of the Big Four banks by market capitalisation, it is looking toward expansion into Asia to drive future growth. It is probably the most advanced among the big banks for this, so its foresight could have great rewards for long-term shareholders. It is currently offering a 5.00% yield.
— Woodside Petroleum Limited (ASX: WPL)
The biggest energy producer listed on the ASX has a number of LNG projects offshore near WA, but is looking for more projects to acquire and invest in. It is planning to work with Beach Energy Limited (ASX: BPT) to explore and develop oil resources in Africa and is talking with other companies about possibilities in South East Asia. It is delivering a yield of 5.8% fully franked and has a very strong history of increasing dividends over the past 10 years.
