The key to building wealth is making a start.
In principle, making a tidy £7,000 or so a year from the stock market isn't difficult. In fact, that's pretty much what you'd have made over most of the last few decades -- provided, of course, that you'd got £100,000 invested in a representative basket of index-tracking shares in the first place.
And therein, of course, lies the rub. Once you've got wealth, it's relatively easy to accumulate more. As the wealthy know all too well, naturally.
Looked at another way, let's take an investor with £100,000 invested in that representative basket of shares, or an index-tracking fund, or a low-cost ETF.
Staying with that historic 7% return, how many years before that £100,000 has doubled to £200,000? I'll tell you: 10 years and three months to clock-up the next £100,000.
And I'll tell you something else, too: I'll bet it took rather longer to accumulate the first £100,000.
You won't do it this way
Hence, of course, the title of this article: The First £100,000 Is The Hardest. That was certainly true in my own case, and I'm sure that the same applies to many people.
Yet time and again, I see people pursue a half-hearted approach to building-up their wealth. Typical mistakes:
- Relying on cash savings in bank accounts. Do they realise that today, real interest rates are negative? You won't get rich that way.
- Relying on big illiquid bets on property. I'm not saying that it can't be done, but I am saying that it is more work -- and riskier -- than many people suspect.
- Relying on high-charging 'advisors' and the products that they hawk, instead of opting for low-cost vehicles such as index trackers, ETFS and solid blue-chips.
And that's before considering the enormous numbers of people who don't even get as far as accumulating any spare cash to invest in the first place, but blow it on holidays, meals out, expensive hobbies and other lifestyle fripperies.
Ten steps
To me, the starting point for accumulating that first £100,000 is The Motley Fool's Ten Steps to Financial Freedom. You know the kind of thing:
- Get out of debt.
- Save regularly -- and if you can't, adjust your lifestyle until you can.
- Take those savings and invest them, for higher returns.
- Use tax-efficient savings and investment vehicles.
- Protect what you've got.
Not read it recently? Here's the link again.
Getting started
All of which is great, but still leaves many people nervous about taking their first steps into the world of investing.
You know the sort of thing I'm talking about: taking a chunk of their hard-earned cash, and actually putting it in the stock market -- as opposed to fantasising about putting it in the stock market.
And if that description fits you, then consider downloading this special free guide from The Motley Fool -- "What Every New Investor Needs To Know" -- which aims to demystify the process. As I say, it's free, so what have you got to lose?
While you're at it, take a look at its companion, "10 Steps To Making A Million In The Market". I think it's one of the best motivational guides to investing that I've read, and one that is packed with practical steps that the beginning investor can make. It too is free, and again, all I'd say is this: what have you got to lose by reading it?
Save to invest
The bottom line, though, remains the same: you can't invest cash you haven't got.
And in today's economic climate, where there's no doubt that hard-pressed consumers are feeling the pinch, it's easy to put off notions of investing until times improve.
But that could be a while off. So take a look at your lifestyle, take a look at your household expenditures, and see if savings can be made. Because from those savings will come investments.
Remember, the first £100,000 is the hardest.
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Further investment ideas from Malcolm Wheatley:
