I don’t expect to make a million on the stock market myself, and there’s a simple reason for that. I didn’t start investing early enough. I’m not alone, failing to start a pension is one of the biggest financial regrets of all, according to research from Hargreaves Lansdown.
It’s certainly one of mine. I did a stupid thing in my early 20s, and opted out of my company pension. I only expected to work there a couple of years, but ended up staying a whole decade. I’ve been playing catch-up ever since.
Having no savings at 30 is not the end of the world. Incomes have stagnated and there are so many other demands on people’s pockets. The good news is that at this age, retirement is still more than 35 years away. That’s enough time to make a million by investing in shares.Â
This will take decades
It will take plenty of hard work, though and isn’t guaranteed. While some novice investors see the stock market as a way of getting rich quick, they’re wrong. Every investor dreams of making a fortune by investing in an early-stage world-beater, but the chances of picking the next Amazon are vanishingly thin.
In my view, the best way to make a million from shares is slowly, over many years. I would aim to do it by building a balanced portfolio, comprising mainly top FTSE 100 stocks, and holding them for the long term.
Let’s say I was still 30 (I can dream) and had £5,000 at my disposal. If I invested it in a FTSE 100 tracker and it delivered an average total return of 7% a year, by age 66 my money would have grown to £57,119. It would be worth 11 times what I paid in, which is impressive. The downside is this will be worth less in real terms, due to inflation.
Obviously, £5,000 won’t make a million for my retirement on its own. I’d have to work a lot harder than that. So I would also aim to invest a regular sum in UK shares every month. If I invested £350 a month, after 36 years I would have a mighty £669,217, assuming the same 7% annual growth.
Still time to make a million
If I increased my £350 monthly contribution by 3% a year, to keep up with rising earnings, I would have £957,858.
Add that to my £57,119, and I would have made a million to retire on. That’s on top of my State Pension and any occupational pensions.
My point is to show how wealth builds over time. Even relatively small monthly sums could roll up to something big, if I give them long enough.
At 30, finding £350 a month to put aside is a tall order, of course. Especially with other demands such as buying a home or raising a family. Still, investing smaller monthly sums would give me a lot more wealth in retirement than if I never tried at all.
It isn’t easy to make a million, but I’ll get richer by trying.