No savings at 45? Here’s how to maximise FTSE 100 investing potential

Jon Smith explains several ways to make cash work harder when investing in the FTSE 100 to be able to enjoy future retirement more.

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I think few would disagree that investing in the FTSE 100 can yield some attractive long-term results. History shows this to be the case when I look at the total return from capital gains and dividend payments. It’s often said that the best time to invest was 20 years ago, and the next best time to invest is today. But is this possible with no savings at 45?

Creating cash to work with

Assuming a desired retirement age of 65, having no savings at 45 gives a runway of two decades to generate an investment pot to enjoy.

Before an investor can look at how to maximise the potential profits from investing in the FTSE 100 over this period, we have to start with cash flow. Having no savings isn’t a problem. But it does require something to change in order to have surplus funds to put to work in the market.

This can come in some unexpected ways, such as a work bonus or money from inheritance. However, these can’t really be planned. Rather, a person can either cut down on expenses or find a way to increase income. Either way should create an excess of funds come the end of the month that can be used to invest in the market.

Picking sectors, using dividends

One way I feel investors can really squeeze the lemon is by having a diversified portfolio of stocks. I don’t believe holding a tracker fund with all containing all 100 stocks is the best way to go. Rather, picking a dozen ideas from different sectors can provide us with the ability to outperform the benchmark.

Granted, the risk here is that the picks underperform. Yet there’s always going to be some kind of risk when trying to chase higher-than-average profits.

Another key point is to include dividend stocks as part of any portfolio. This doesn’t mean necessarily sacrificing capital growth potential. There are many stocks in the index that are up over the past year and also have a dividend yield in excess of 5%. Some examples include Lloyds Banking Group and Aviva.

The benefit this provides is that an investor can pick up valuable income over the course of the coming years. This can be used to put money back into stocks to grow further. It also reduces the pressure on having to find new money to invest.

Staying invested for the long run

Finally, it can make a huge difference in leaving the money invested over time rather than buying and selling frequently. After building up some savings via the investment account, there might be a need for the money for unavoidable expenses. An investor can’t do anything about this and might be forced to sell some shares.

However, if the reason for thinking about selling is to buy some new golf clubs or make some other discretionary purchase, it can be damaging to long-term performance. It could mean missing out on share price gains, or simply having to pay unnecessary fees for buying and selling.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group 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.

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