Story by Royston Wild

DIVIDEND YIELD text written on a notebook with chart

DIVIDEND YIELD text written on a notebook with chart

I’m planning to fund my retirement with a broad portfolio of dividend shares with high yields and strong payout histories. That way, I can realistically expect to receive a regular and growing passive income while continuing to increase the size of my pension pot.

How £500 a month in UK and overseas stocks could eventually build a passive income above £64,000.

Diversifying for strength

Whether someone is seeking growth or dividends, building a diversified basket of shares is critical for targeting long-term returns. It allows an investor’s portfolio to better absorb individual shocks. What’s more, this approach can produce a consistent return over time by balancing higher-risk cyclical shares with defensive stalwarts.

This strategy doesn’t need investors need to settle for sub-par returns either. Harry Markowitz — widely considered to be the creator of modern portfolio theory — once described diversification as “the only free lunch in investing.”

Today’s investors can choose from thousands of stocks, investment trusts and exchange-traded funds (ETFs) from around the world. This gives each one of us the power to build a bespoke portfolio suited to our own investment goals and attitude to risk.

Let’s look at what a diversified portfolio might look like:

Past performance is no guarantee of the future. But it this continues, investing £500 a month would grow to £922,923 over 25 years.

A top ETF?

For me, funds like the iShares Edge MSCI World Value Factor ETF are great ‘cheat codes’ for building a well-diversified and high-performing portfolio easily and affordably. It’s why I own several in my own portfolio.

This one holds shares in roughly 400 global companies. It provides “direct investment in global equities which are undervalued relative to their fundamentals,” like book value and predicted earnings.

This approach gives the fund strong growth potential by targeting quality companies priced below their intrinsic value. Key holdings include Qualcomm and Intel, for instance, trading at a substantial discount to industry leader Nvidia and which could theoretically deliver greater long-term share price growth.

Its high weighting of tech stocks could make the ETF more vulnerable during downturns. But I still believe it’s a great fund to consider as part of a diversified portfolio.