Is this the best way to make £1 million for your retirement savings?

Could a simple means of investing help you achieve your retirement goals?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Most people would love to retire on £1m. It is enough to enjoy a financially free retirement, and for many people is a much more realistic prospect than they may imagine.

Certainly, there are a variety of methods and strategies which could be employed to reach a retirement savings figure of £1m. However, for many people it is difficult to find a method that offers a mix of reward, limited risk and efficiency.

All too often, a strategy of investing in shares means a time commitment which is not possible for many working people. And with high returns usually meaning high risks, it can be difficult to adopt a solid strategy which delivers on an individual’s retirement goals.

Simplicity

Perhaps the most underrated method of generating a large nest egg for retirement is investing in a tracker fund. In recent years they have become increasingly attractive due in part to their lower costs. It is now possible to access a FTSE 100 or FTSE 250 tracker fund and pay less than 0.3% per annum in charges. This means that the return for an investor almost matches the return of the index in question, with tracking error usually being relatively low over the long term.

As well as a low cost, the benefit of a tracker fund is diversification. Investing in a FTSE 100 tracker fund means that an investor has exposure to 100 different stocks, which reduces company-specific risk to a relatively low level. Of course, market risk remains, and stock markets do endure periods of volatility. But in the long term, the odds are stacked in an investor’s favour, since both the FTSE 100 and FTSE 250 have always come back from any bear markets that they have experienced. In other words, holding them for the long term has always yielded capital gains for investors no matter when they invested.

Return potential

While investing in a tracker fund may seem like an overly simple method, the returns on offer can be exceptional. For example, the FTSE 250 has recorded an annual total return of almost 10% over the last 20 years. Many investors, both professional and private, would struggle to beat such a return over a long time period. Therefore, in many cases, a tracker fund may offer superior returns to those that can be achieved through stock picking.

Furthermore, investing in a tracker fund could be a good idea for investors who are time-poor. Once set up, it is possible to fully automate the process of buying units in a tracker fund, and so it would require minimal ongoing work on the part of the investor.

Superior performance

Of course, for investors who are able to take the time to find the better opportunities in the FTSE 100 and FTSE 250, buying shares in companies rather than units in a tracker fund could be a sound move. Doing so could lead to superior performance, as well as the potential to tailor a portfolio towards dividends or growth specifically.

But for investors who want to capitalise on the growth potential of the stock market and have very little time to do so, a FTSE 250 tracker fund seems to be a sound means of making £1m.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 UK stocks that could do well out of the general election

Jon Smith runs the rule over two UK stocks that may benefit from higher spending on healthcare, consumer staples and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Could this undervalued growth stock be the next big success story in US tech?

Shares of this US technology giant have collapsed almost 50% in 2024, but is the growth stock now an incredibly…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

After soaring 35% this year, is there still value in Barclays shares? Here’s what the charts say!

Barclays has been on a tear in 2024. But where does that leave investors considering buying some shares now? This…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Nvidia stock has surged 3,450%. This UK investment trust owns loads!

Nvidia's recent amazing price surge has helped boost the value of this investment trust too as the chipmaker is its…

Read more »

Bronze bull and bear figurines
Investing Articles

After the general election what might happen to the FTSE 100?

Our writer’s been looking at the manifestos of the three main political parties to try and understand how the general…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »