Most people will, unfortunately, never become millionaires. That’s not because they lack the ability, nor is it because they do not work hard enough. Similarly, plenty of intelligent, hard-working people are prudent with their hard-earned cash and do not engage in frivolous spending. Instead, they prefer to save, pay down their mortgage and attempt to better their lot through promotions at work and possibly a second job.
While this is most certainly a noble endeavour, there could be a much, much easier way of becoming a millionaire. And, while there are no guarantees that it will work, by investing £15 per week in the stock market, each of us could be sitting on a cool £1million by retirement.
The key reason for this is the stunning performance of the FTSE 100. Since its birth in January 1984, the index of the UK’s biggest one hundred companies by market capitalisation has risen from 1,000 points to its current level of around 6,100 points. That is a rise of 6.1 times and works out as an annualised return of 5.9% during the 31.5 years in which the FTSE 100 has existed. Add to that a dividend yield of around 3.5% per annum and the total return since 1984 has been around 9.4%.
Clearly, there are no guarantees that the FTSE 100 will perform so well in the next 31.5 years. However, when you consider that the period has included the crash of 1987, the dot.com bubble, 9/11 and the credit crunch, it has not necessarily been a smooth or easy rise to generate that level of return.
Of course, the key to investing is not to time the market, but to have time in the market. In other words, the longer time period in which you are invested, the greater your returns are likely to be. Investing from the age of 18 until retirement at age 67 provides a generous time period of 49 years in which investments in shares have time to deliver the kind of performance that can make a huge difference to the investor’s lifestyle.
In fact, by investing just £15 per week each week from the age of 18 and increasing the amount invested by inflation (assumed to be 3% per annum) means that by retirement, the total value of shares held is £990,323. And, while that may be just under £10k short of the seven-figure mark, it should take only a matter of weeks for the portfolio to push through the £1million level as a result of the very generous dividends continually being received.
So, while working hard, improving your knowledge and being disciplined with your wages are highly commendable attributes to teach young adults, perhaps the best move they can make is to decide how many times over they want to be a millionaire and to invest accordingly. After all, why shouldn’t the millionaire’s club be an inclusive one?