Yesterday morning, a report by charity Independent Age estimated that almost 1mover75s could be living in poverty. This statistic highlights why, if circumstances allow, its important to start your investing journey early, even if retirementis decades away. While a balance shouldbe struck between enjoying yourself nowand acting prudently for the future, its always good to look into where you can save money. The more you save, the more you caninvest. The more of the latter, the greater your chances of building an enviable pot to smooth the transition from employee to retiree.
Skip the coffee, buy the company
Your morning pick-me-up from Costa Coffee may put a spring in your step but over a typical month, this indulgence will cost you up to 57.50 if we assume itsroughly 2.50 per cup. Over a year, thats just under 700. Thats a lot to give away in exchange for a quick caffeine fix. There may be a better option. Why not buy the company rather than itscoffee?
Costa Coffee is owned by Whitbread(LSE:WTB),the UKs largest restaurant, hotel and coffee shop operator. In addition to drinking itsbeverages, you may well have contributed to itsprofits by staying at a Premier Inn or by tucking into a burger at a Beefeater Grill.
Now could be a perfect time to invest in this 7bn cap. Fears surrounding the introduction of the National Living Wage and its impact on earnings, along with the departure of its popular CEO Andy Harrison, have led many investors to dump the shares over the last year. Theyve now fallen from 5,290p in May 2015 to a current price of 3,914p. Despite having solid plans for future growth, the companys shares now trade on a P/E of under 18.
Remember that 700? Investing this amount just once and not touching it for 20 years would give you 1,534, assuming an average annual return of 4%. It gets better. Whitbread also pays a rather tasty (and growing) yield to its loyal shareholders. Right now, this stands at 2.31%, easily covered by earnings. Reinvesting your payout back into the company could generate even bigger returns for your portfolio. Imagine if you invested that 700 every year for20 years and reinvested your dividends. Still craving that coffee now?
Pack a lunch, save a fortune
Over lunch today, you may be tempted to visit a branch of Marks and Spencer(LSE:MKS)for one of itssalads. Again, investing in the company rather than spending on itsproducts may be a wisemove. Few would question the quality of Marks and Spencers food offering. Why not profit from consumersbrand loyalty?
M&Sshares are currently at 423p, giving a forecast rolling P/E ratio of just under 12. Thats pretty cheap for such a well-regarded company (as far as itsfood is concerned). And the yield? Even higher than Whitbreads at 4.3%, covered almost 1.5 times by earnings.
Skipping yourregularcoffee and preparing lunch at home may seem a lot to ask, especially if your time is limited. However, investing in large, robust companies with fairly predictable earnings for the long term is better for your wealth. And when the time to swap your daily commute for trips to the golf coursedoescome, you can either sell your investments or continue holding them for their income.
Paul Summers does not own shares in any of the companies mentioned. Motley Fool does not have any position in the shares mentioned. We fools dont all hold the same views but we all believe that considering a diverse range of insights makes us better investors.
