3 reasons I invest for retirement by buying FTSE 100 shares

Retirement can seem like a long way off. But a common observation among retirees is that they want to start investing for retirement at a younger age. There are different ways to do it and one I use is to buy blue-chip stocks. Here’s a trio of reasons why I think that approach works for me.

1. proven business

To sign in FTSE 100the company must achieve a certain market capitalization.

In itself that does not mean they are good business. But as a rule, I tend to think that the companies that make the index have shown to investors that they have a business that is at least as important. Today, the stock price of the smallest The market capitalization of the FTSE 100 company is £3.7bn. It is not a small price!

Past performance is no guide to what will happen in the future. But when I consider many FTSE 100 shares such as National Grid and Lloyds BankI hope to stay in business for the long term, with the potential to at least generate huge profits in the future.

2. Dividend potential

Both businesses have commercial models that can now pay dividends. National Grid has yielded 5%, while Lloyds is offering 4%.

Dividends are another reason I like to buy FTSE 100 shares when I invest for my retirement. Although the payment from the company can form an attractive passive income stream for me now, I can even reinvest in other shares.

Over time, that will hopefully lead to dividends that help me earn more. That is known as compounding. Although these principles are easy to understand, they can be powerful tools for building wealth over the long term. I think that can make such an approach suitable when I invest for retirement, an important financial planning exercise that can stretch over decades.

3. Blue-chip light

Many companies in the FTSE 100 have matured. Many are also in the adult industry.

That may mean I have to set my growth expectations for them quite low. But one of the things I like about these stocks is that they give me exposure to big blue-chip companies with multinational operations, such as Unilever and Vodafone.

Diversification is an important risk management method when investing – and I always want to monitor my risk when building my retirement portfolio. A large company with a wide spread of operations in multiple markets can help me as I strive to diversify my portfolio. I think investing in a few can reduce the risk compared to investing in a few small companies that are highly concentrated in one market.