Can you make a million from investing in UK shares? Many have achieved exactly that. And if you have enough time at your disposal and invest for the long term, I reckon you could do it, too.
It’s often said that time in the market is what counts, not timing the market.
Warren Buffett famously urges us to seek shares in great companies at a good price rather than trying to get the timing right for the very lowest price. I certainly agree with that — mainly because, like almost everyone else, I’m lousy at market timing.
Start now
Having said that, I do believe that conditions in 2019 could make it one of the best years to get started, as I see a FTSE 100 recovery as being just around the corner. But what would you need to achieve to make a million?
If you can average an annual return of 6% per year, investing £525 per month, and re-investing all dividends would see you just tipping over the million pound mark in 40 years.
The best cash ISAs today, paying around 1.5% interest, would take 82 years to get you to a million.
It’s worth it
Now £525 per month is not to be sneezed at. But plenty of people are paying far bigger amounts in mortgages or rents, and running expensive cars. Can you live in a modest home, drive a more modest car (or, like I do, cycle or use public transport to get everywhere)?
You might be surprised how much you can free up to put towards your millionaire aspirations.
If you can manage to invest £1,000 per month, which many really could do, the millionaire timescale would come down to 31 years at 6%. That’s a long-term horizon, sure, but if you’re in your twenties and start now, you could be a retired millionaire in your fifties.
And even those in their mid-thirties today could reach the magic number aged 65.
Age 45 now? You could still retire with half a million at 65.
Beat that?
Here’s what I think is key right now — the FTSE 100 is paying super high dividends these days. If you spread your cash across the whole index you’ll be looking at a forecast 4.9% dividend yield in 2019, according to AJ Bell’s latest Dividend Dashboard.
And by ignoring low-dividend shares and only going for cash-rich companies which pay consistently high dividends, I think putting together a portfolio with an overall dividend yield of 6% or better is really not too much of a challenge.
That means you might be able to turn that original £525 per month into a £1m in 40 years from dividends alone, and any share price appreciation would be a bonus.
Top return
If the FTSE 100, which I reckon is seriously undervalued, does recover over the next few years, I think you’d stand a very good chance of getting total returns of 8%, 9%, or even 10%, or more. Not every year for 40 years, perhaps, but locking in high dividend yields today can make a very significant difference to your long-term profits.
An average 8% annual return would turn your monthly £525 into £1m in 34 years, or £1,000 per month if you can afford it into £1m in just 26 years.