Investing money in FTSE 100 shares in a Stocks and Shares ISA may not seem to be a sound means of making a million. After all, the index has yet to recover from the 2020 stock market crash. Moreover, its capital returns in the past couple of decades have been somewhat disappointing.
However, the index could deliver impressive returns on a total returns basis that turn a modest regular investment into a surprisingly large lump sum. It could even be a sound path to making a million over the long run.
FTSE 100 total return potential
The FTSE 100 index currently trades at a lower price level than it did at the turn of the century. As such, from a capital returns perspective it has been a disappointment over that timeframe.
However, looking further back than the past 20/21 years highlights the long-term potential of the index. In fact, since its inception in 1984 the index has delivered an annualised capital return of around 5%. Therefore, an investor who buys shares in a diverse range of large-cap shares could generate an attractive capital return during their lifetime.
Moreover, the FTSE 100’s returns appear to be even more impressive when dividends are taken into account. In fact, its total returns on an annualised basis are in excess of 8% over the past 36/37 years. Therefore, an investor who reinvests the passive income they receive from investments in blue-chip shares could end up with a surprisingly large retirement nest egg.
Drip-feeding money into UK shares to make a million
The potential for a regular investment to deliver high returns via FTSE 100 stocks is perhaps best illustrated by an example. Assuming an 8% annual return, an investor who buys £10 of shares per day (£304 per month) could end up with a portfolio valued in excess of £1m within 40 years. From this, they could withdraw 4% per annum to enjoy a passive income of over £40,000.
Clearly, an investor would buy shares on a monthly or quarterly basis instead of literally investing £10 per day. And the future prospects for the index could be different than those of the past. However, the example serves to show that the FTSE 100 may offer stronger long-term returns than many investors realise. It is often viewed as a slow-growth index that is only attractive to income investors. However, its total return potential may be relatively appealing.
Investing money in a Stocks and Shares ISA
A Stocks and Shares ISA could further improve an investor’s returns from FTSE 100 shares. No dividend tax or capital gains tax is levied on amounts invested through an ISA. This could add up to significant savings over the long run. It could produce a higher end portfolio value and a greater amount of financial freedom in older age.