If you want to make a million from investing in UK shares, you need a plan. Then you need to stick to it, throughout your working life. If you dedicate yourself to the task of building your wealth, you may be surprised how far you get.
The stock market crash makes now a good time to get started, as many top FTSE 100 shares are trading at bargain prices. Although the truth is, if you want to make a million, you have to invest through thick and thin. Whenever you have the money, basically. Here’s how I’d aim to get there.
1. Start investing regularly now
The earlier you start, the better. It is possible to make a million by investing as little as £100 a week, if you are young. If you start at age 25 and make an average total return of 6.5% a year after charges, you’d have £1.04m by age 66.
Even if you start at a later age, it can be done. Cut back on frivolous spending where possible, and invest all you can. If you take out a personal pension, you can get tax relief on your contributions, boosting their value. In a Stocks and Shares ISA, all your returns are free of income tax and capital growth for life. Even if you make a million.
If you don’t have £100 a week to spare now, start with a smaller regular sum and look to increase it over time. Another advantage of investing regularly is that you do not have to worry about timing the market, or whether shares are up or down. In fact, you benefit when shares fall, as your monthly payment picks up more stock.
2. Reinvest all your dividends
After you have chosen your stock or fund, check the settings on your online wealth platform to ensure all your dividends are automatically reinvested. In the long run, dividends make up a huge chunk of your ultimate returns. Those regular payments may not seem much on their own, but are a key part of your bid to make a million.
Over the 20 years to 31 December 2019, the FTSE 100 rose by just over 600 points to 7,542, a rise of just 8.8%. If you had reinvested all your dividends, your total return would have been 122%, according to Schroders. You can draw your dividends after you retire, to top up your pension.
3. Add lump sums to make a million
As well as investing regular monthly sums, you should turbocharge your ‘make a million’ plans by paying in one-off lump-sums whenever you have cash to spare. Whether this is a work bonus, inheritance or other windfall, you should put it to work as soon as you can. Otherwise you risk frittering it away.
You will not make a million on the stock market overnight. This is the work of a lifetime. The sooner you start planning, the better your chances of making it.