For the vast majority of investors, making a million from investing in shares is one of their major goals. After all, if you had £1 million in shares, it could provide you with a very comfortable income and allow you to retire early, pay off the mortgage, or simply experience a more financially free lifestyle.
However, most investors also think that getting there is out of their reach. After all, finding the best shares takes time and effort, while trying to time the market can leave many investors feeling as though investing is more down to luck than skill.
This, though, couldn’t be further from the truth and making £1 million from the stock market may be easier than you realise. Here’s why.
Stunning Returns
Clearly, the younger you are when you start investing, the better. That’s because you have more time for your returns to compound, but even someone who starts investing later in life can still make £1 million.
That’s because over the last 31 years the FTSE 100 has delivered a total return of 9.9% per annum. This means that just £500 invested in 1984 in an index tracking fund would now be worth £9,330, which is a fantastic rate of return when you consider that the 31 year period includes major negative events such as Black Wednesday, the dotcom crash and, of course, the credit crunch.
Additional Investment
Clearly, having £9,330 today from a £500 investment 31 years ago is a great return. However, in reality you are unlikely to invest a lump sum and leave it for such a long time period: there are bound to be additional investments made during the period. It is these additional investments that make all the difference.
For example, if you had invested £500 in the FTSE 100 in 1984 and continued investing £500 per month, you would have invested a total of £186,000 during the 31 year period. Using the annual total return of 9.9%, this would have grown to a total portfolio value of £1,118,086, which is well in excess of the £1 million that many investors target.
Keep It Simple
Clearly, investing £500 per month may be out of reach for many investors, while others may not have 31 years in which to grow their wealth. However, the above example represents the fact that investing in shares is not all that complicated, and that if it is done with discipline and patience then it can be highly worthwhile.
For example, the above scenario does not even attempt to outperform the index, it does not try to anticipate future share price falls, it does not ‘pile in’ when shares look cheap, and certainly does not sell out when the going gets tough (such as during the credit crunch). It simply shows that the regular buying of a diversified group of companies over a long enough time period will equate to a sizeable portfolio in the long run.
Therefore, building a £1 million portfolio is far from being down to luck, and is certainly well within your reach.
