Spend any time trawling the internet, or reading the popular press, and it’s not difficult to discover a wealth of advice about how to become rich.
The problem? Quite often, many of the tips on offer won’t be suited to your individual circumstances, personality or starting point.
There’s no point dreaming of becoming a ‘buy to let’ millionaire, for example, if you can’t raise the deposit to buy your own home, or you don’t like getting involved in property maintenance and issues with tenants.
But don’t give up hope. Here are three tips that really do work — and which, what’s more, will suit most people, and don’t require oodles of upfront cash.
Invest in the stock market, not in cash savings accounts
Right now, Bank Rate stands at 0.5%. That’s the lowest it’s ever been, in a 320-year history stretching back to 1694.
But even with yesterday’s news that the rate of inflation had dropped to a welcome 1.5%, that still means that the vast majority of savings accounts still pay a negative inflation-adjusted rate of return.
Granted, that’s not always been the case. But time and again, historical analyses show that the stock market beats cash savings hands down.
Over the past 20 years, for instance, according to the annual Barclays Equity/ Gilt study of comparative returns, the stock market has provided a real — i.e. inflation-adjusted — return of 4.5%. Cash? 1.6%. Over 50 years, the difference is even wider: 5.5%, versus 1.6% for cash.
The difference may seem small, but thanks to compound growth, it quickly amounts to a life-changing figure.
As an example, £10,000 increasing at 1.6% a year for 50 years grows to £22,115. In the stock market, at 5.5%, the same £10,000 grows to £145,420 — a difference of £123,305.
Access the stock market through low‑cost investments
That said, high costs can quickly sap those stock market returns. Popular investment funds offer decent diversification and a good track record, but that comes at a price.
For my money, I prefer a low-cost index tracker fund tracking the FTSE All-Share or FTSE 100 indices. Vanguard’s popular FTSE All-Share tracker, for instance, is available on most of the leading investment platforms and fund supermarkets, and has charges just 0.15% a year.
As an alternative, consider a direct holding of a rock-solid FTSE blue-chip that closely follows the FTSE 100 index. Over the past five years, for instance, the share price of global oil giant Royal Dutch Shell (LSE: RDSB) has increased by 51%, while the FTSE 100 has returned 53%.
Throw into the mix Shell’s generous FTSE-beating 4.5% dividend yield, and the inbuilt cost of a tracker, and it’s pretty much a question of level-pegging.
Use tax‑advantaged savings wrappers
Finally, keep your hard-earned wealth yours — by making maximum use of ISAs and Self-Invested Personal Pension (SIPP) ‘wrappers’ to hold your investments.
In an ISA, for instance, earned dividends are free of any further income tax, and capital growth is free of capital gains tax.
Put another way, that’s a tax-free income that under present rules you don’t even need to declare on your income tax return, and handsome tax-free capital gains if you choose to liquidate some of your investment.
In a SIPP, contributions benefit from tax-relief on the way in — and what’s more, at your highest marginal rate of income tax, under present rules — and capital growth is exempt from capital gains tax.
Wealth for all
So there we have it: three wealth-building tips suitable for anyone, and requiring only patience and enough spare cash to make monthly contributions into an ISA or SIPP.
And what’s not to like about that?
