Could drip-feeding £500 into the FTSE 250 help you retire comfortably?
Investing in the FTSE 250 has delivered solid enough returns over the last 10 years. An average annual return of 5.4% since late 2015 comfortably beats saving cash. Over the last three years, the index’s returns have accelerated, hitting double digits over the past 12 months.
Is now the time to buy mid-cap shares to target long-term wealth? And is that sort of figure good enough to build a suitably large nest egg for retirement? Let’s take a look.
10.6% return
Since late 2022, the FTSE 250‘s average annual return has risen to 8.6%. On a 12-month basis, it’s delivered a total return of 10.6%.
That might be surprising given persistent weakness in the UK economy. With roughly half of the index’s earnings made from these shores, it it highly sensitive to conditions at home.
So why have the index’s returns ripped higher? Greater political stability in Britain more recently is one key factor.
The period from 2015 from 2022 was defined by Brexit and then pandemic pressures that claimed several prime ministerial scalps and caused some not insignificant policy chaos. It’s no surprise then that appetite for domestic shares was weaker then.
The FTSE 250 has also benefitted as demand for European shares on the whole has picked up. A volatile political landscape in the US has prompted global investors to diversify into overseas shares. And companies in the UK and Mainland Europe have been especially attractive given their cheap valuations.
Can it continue?
So can investors now expect the FTSE 250 to potentially deliver life-changing wealth? If the index continues its recent outperformance, the answer’s a clear ‘yes.’
With a 12-month return of 10.6%, a £500 a month investment in a tracker fund would generate a £1.4m nest egg after 30 years.
However, there’s some massive problems with this assumption. Using any short-term return to project eventual profits is dangerous business. Using a long-term figure better illustrates what can be achieved with a patient investing strategy.
The UK also faces significant challenges that could compromise the index’s future returns.
While it’s been more stable recently, Britain’s political landscape remains febrile as government polling sinks. What’s more, the UK economy faces still faces enormous challenges that could compromise long-term corporate earnings. These include labour shortages, falling productivity, trade tariffs, and high public debts.
A better way to target wealth?
The FTSE 250 is home to some great companies. However, I think purchasing individual shares is a better way to consider aiming for high returns than with a tracker fund. It’s a strategy I’ve taken by adding mid-tier shares like Greggs and Primary Healthcare Properties to my portfolio.
AJ Bell (LSE:AJB) is another high-powered UK share to consider today. The financial services group has been delivering impressive returns for much longer than the broader FTSE 250 — it’s delivered an average annual return of 13.3% since it listed on the London stock market in late 2018.
The financial services industry is highly competitive. But AJ Bell has proved it has what it takes to thrive. Customers numbers soared 19% during Q3 to 644,000, latest trading numbers showed, while record inflows drove assets under management to all-time highs (also up 19%).
I expect earnings here could surge as demand for financial planning services booms. I think AJ Bell’s one of the hottest FTSE 250 shares to consider.
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Royston Wild has positions in Greggs Plc and Primary Health Properties Plc. The Motley Fool UK has recommended Aj Bell Plc, Greggs Plc, and Primary Health Properties Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
