It is possible to make a million from investing in shares, and you don’t have to be a genius stock picker to do it. However, you do have to work at it, because building that kind of money takes a good deal of time and effort.
There are no guarantees you will get there. If success was assured, there would be millionaires everywhere. However, I can see three paths towards making a million.
Make a million slowly but surely
The simplest way to make a million is to take my time about it. UK shares are not a get-rich-quick mechanism, but can help investors get rich slowly. The key is to start investing as early as you can, then stick with it. If you are still young, turn time to your advantage.
If you start investing £500 a month in the FTSE 100 at age 25 and make an average total return of 6.5% a year after charges, you would have £1.2m by age 66. Time is the greatest friend an investor has.
Making up for lost time now
The older you are, the harder it is to make a million. If you do not start seriously investing until age 35, you would have to double the amount you invest every month to £1,000. Few of us have that kind of money to spare, especially these days. However, check what savings you already have. For example, if you have been in a company scheme for 10 years, your plans could be further advanced than you think.
Remember, if you invest in a personal pension, you will get tax relief on top. If you are a basic rate taxpayer, every £100 you invest costs just £80 after tax relief. For a higher-rate taxpayer, it will only cost £60. So that £1,000 has shrunk to £600 a month. If you have access to a company scheme with employer contributions, your contribution could be even lower, and making a million pounds for retirement will be that bit easier.
Throw the kitchen sink at it?
I’m not promising the moon on a stick here and we all know that share prices can fall as well as rise. There’s a reason why most people will never make a million from stocks and shares. It requires dedication, and a decent income to be able to put regular sums away.
To get there, an investor would likely need to pull out all the stops, making it their life priority. Work through all your spending, and look for ways to cut back. Instead of frittering your cash, pop it into your portfolio. If invested wisely, the aim is to watch it grow. If you have built up savings during the lockdown, you might consider investing them in shares rather than leaving them in the bank. Low interest rates mean it’s extremely hard to make a million from cash these days. Whenever I have a lump sum to spare, my first thought is: which shares can I buy now?
Use all the pensions tax relief at your disposal, and make the most of your £20,000 tax-free Stocks and Shares ISA allowance. It’s a big thing, to make a million pounds. Most of us won’t even get close, but we’ll be richer for trying.