Making a million from investing £500 per month in UK shares may sound like an impossible task at first glance. After all, the prospect of a second market crash may mean that share prices continue to see high volatility in the coming months.
However, by adopting a long-term view, diversifying across high-quality businesses and keeping your costs to a minimum, it is possible to obtain a £1m portfolio from buying FTSE 100 and FTSE 250 shares.
A long-term view of UK shares
It is easy to doubt the return potential of UK shares after their recent performance. Many FTSE 100 and FTSE 250 stocks are currently trading at relatively low price levels following the market crash. As such, investors who have bought stocks over recent years may have paper losses.
However, the long-term prospects for the stock market continue to be very attractive. The lack of returns on other assets, such as bonds and cash, means that demand for equities could be relatively high. And with the stock market having produced a high-single-digit return per year over the long run, it is likely to offer a relatively high rate of capital growth in the coming years.
Therefore, investors who look beyond the short-term risks for UK shares, and instead focus on their long-term prospects, may benefit from buying at low prices today. Over time, stock prices are likely to recover in many cases.
Buying high-quality businesses
As well as regularly investing £500 per month in UK shares, buying a diverse range of strong businesses could improve your chances of making a million. Companies with strong balance sheets, wide economic moats and sound growth strategies are more likely to deliver better financial performances than their peers. This may lead to them commanding higher valuations that translate into rising stock prices.
Of course, building a diverse portfolio of high-quality businesses is crucial for any investor. This reduces your overall risks, and could mean that you gain exposure to a wider range of sectors through which to boost your chances of making a million.
Keeping costs to a minimum
Investing £500 regularly in UK shares means that commission costs could add up. Even though online share-dealing is now relatively cheap, it is possible to further reduce your buying costs through the use of a regular investing service. This is where a share-dealing provider offers a lower commission for reduced flexibility, with stocks often executed at some point on a specific date.
Although this provides you with less control over the price you pay for a stock, it could reduce your overall costs. This may improve your overall returns and reduce the amount of time it takes to make a million.
By keeping your costs to a minimum, investing in a diverse range of high-quality businesses and focusing on the long run, you could improve your prospects of making that million. Even if you only generate a similar rate of return to that of the FTSE 100, investing £500 per month in UK shares at 8% per year over 35 years would produce a seven-figure portfolio.