Do you fancy making £1m? It isn’t easy. You might have done it with cryptocurrency Bitcoin, if you bought it seven or eight years ago. At today’s price of around $10,000 a coin, you won’t do it now. In fact, the best way of making £1m from Bitcoin is to invest £2m, and give it time.
No such thing as easy money
You will struggle to make £1m from buy-to-let and, even if you do, HM Revenue & Customs will take most of it, thanks to the Treasury’s tax crackdown.
There is a one in 14m chance of winning the National Lottery each week so, by all means, have a flutter but don’t gamble on this to fund your retirement.
Gold has had a storming year, its price up 27% in that time to hit $1,526, at time of writing. It’s worth holding a bit of gold as a shock absorber for when stock markets fall, but I would caution against buying too much at today’s price. There’s a danger it’s been overbought.
Near zero returns
A Cash ISA will never make you a million, with even best buy instant access accounts paying just 1.5%. This is below the inflation rate of 2%, which means your money is actually falling in real terms. If you invest this year’s full £20,000 ISA allowance, at that rate of return it will take 263 years to bust through the £1m mark. A million won’t be worth quite as much then.
Even if you invested £20,000 in a Cash ISA every single year, it will take you almost 37 years before it tops £1m. So you can write all of those off.
Get rich nice and slowly
Building £1m nest egg for your retirement is a tall order but I still believe the best way of doing it is through a Stocks and Shares ISA – ideally combined with a company pension offering employer contributions (don’t opt out if you have one of these).
Stocks and shares top all the alternatives I’ve listed here because they offer a winning combination of share price growth and, importantly these days, dividend income. The FTSE 100 index of UK blue chips may have disappointed after overperforming in the booming 1980s and 1990s, but it continues to grow at quite a lick, with an average annual return of 8.8% in the past decade, according to figures from IG.
At that rate, investing your £20,000 ISA allowance would bring you up to the million mark in less than 19 years. Few of us can invest that much, but you get the idea.
Little by little
Unlike, say, Bitcoin, the stock market won’t make you a millionaire overnight. It’s a get-rich-slowly mechanism, where you build your wealth by investing month after month, year after year, and reinvesting all your dividends back into your portfolio for growth. Here are a few ideas for a starter portfolio.
So, for example, if you invest just £200 a month and never increase your contribution, you could still make £1m. It will take you more than 40 years but that’s roughly the average working life. The more you invest, the sooner you’ll get there.