Investing in FTSE shares is one of the most powerful ways to make your money work harder.
And while putting aside £250 a month might be a bit challenging in the current cost-of-living crisis, the magic of compounding means that investors who manage to muster this capital could eventually find themselves sitting on a mountain of income-generating wealth.
Here’s how.
Getting started
The easiest way to kick-start an investing journey is with a simple low-cost index fund. Here in the UK, the FTSE 100 has historically delivered an annualised return of around 8% over the long run. And by investing £250 a month at that rate, a brand-new portfolio would grow to £260,602.76 over 26 years.
Following the 4% withdrawal rule, that’s enough to sustainably generate a passive income of £10,424.11 a year – not bad at all.
But 26 years is a long time to wait. And if the stock market suddenly decides to throw a tantrum at the last minute, the actual waiting time could be much longer.
However, for investors willing to do a little more homework and pick stocks directly, this timeline could be drastically accelerated, even when investing in boring, steady businesses.
The power of stock picking
Rather than relying on a broad index fund, I prefer to buy shares in FTSE companies directly, targeting businesses that I think have the widest competitive moats and strongest long-term return potential.
Safestore Holdings‘ (LSE:SAFE) one such company from my personal portfolio, and serves as a striking example of when stock picking can lead to tremendous results.
The UK’s largest self-storage operator has averaged a 14.1% annualised return over the last 15 years – nearly double the index average. And anyone who’s been drip feeding £250 each month at this rate since May 2011 is already sitting on £152,936.38 today.
Assuming this momentum continues for roughly three more years, that nest egg could grow to £250,000, unlocking a £10,000 passive income in the process. That’s 18 years to hit the £10k income target – a full eight years faster compared to index investors.
Of course, the question now becomes, can Safestore keep delivering?
Bull vs bear
Safestore’s encountered quite a few macroeconomic challenges in recent years. Higher interest rates have weighed heavily on its leveraged balance sheet. And the impact has been amplified across its self-storage portfolio with customers, particularly small- and medium-sized businesses, ending their leases or downsizing to smaller stores.
Nevertheless, I remain optimistic for what’s on the horizon. Safestore’s a highly cash generative business model, resulting in some fairly resilient underlying fundamentals, despite what the pullback in share price suggests.
But there’s an even more compelling reason why I’ve been buying beyond a discounted valuation: Europe.
The European self-storage market’s still relatively young, underpenetrated, and highly fragmented. In fact, the current market looks eerily similar to the UK when Safestore first got started over two decades ago. And with management already starting to execute and deliver results using its proven playbook, the growth seen so far might truly be just the tip of the iceberg.
So for investors looking for FTSE shares that are long-term steady compounders, Safestore might be worth a closer look.
Should you invest £5,000 in Safestore Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Safestore Plc made the list?
Zaven Boyrazian owns shares in Safestore Holdings.
