If I were to tell you I plan on making a million in the stock market, you might think I am over ambitious. Making a million pounds by investing in stocks and shares is the dream, but very few people accomplish this lofty goal.
However, the reality is you can make a million by investing relatively easily. All you need is a little discipline and time.
Today I’m going to explain how I am going to use these two tailwinds to help me make a million.
Slow and steady
Investing in the financial markets is one of the best long-term approaches to wealth creation, but the fact of the matter is, stocks and shares won’t make you a millionaire overnight. Even Warren Buffett, who is widely considered to be the world’s best investor, didn’t reach this goal until his early 30s. It took several years of hard work and diligent investing on his part before he could claim to be a millionaire.
Still, over the long term, the wealth-creating ability of equities is unrivalled, which is why I am going to invest my money in the FTSE 100. This gives me an instant portfolio of the 100 largest companies trading in London today. The reason why I have chosen the Footsie is that it is one of the world’s largest stock indexes, which means it is relatively easy to track and I don’t need to pay a lot in fund fees. You can buy FTSE 100 trackers today with an annual charge of less than 0.1%.
With my investments taken care of, I can concentrate on what matters most, making sure I am saving enough money every month to meet my million-pound goal. I am currently saving around £300 to £400 a month, and this goes straight into my investment account where it is invested monthly in the FTSE 100.
Compound growth
According to my figures, as long as I put away £300 a month, I will be able to cruise to £1m in 40 years (that’s where the patience comes into play). This assumption is based on the fact that over the past two decades, the FTSE 100 has produced an annual return for investors of around 8%. This sample includes both the financial crisis and the dotcom boom/bust so I believe it is a relatively accurate assumption of long-term returns.
According to my figures, £300 a month invested at a rate of 8% per annum will grow to be worth just over £1m in four decades. If I manage to save £400m a month, I estimate I will be able to save a total of £1.4m by 2059.
So, that’s how I plan to make £1m with the Footsie 100 over the next few decades. It is a simple strategy, and there is no need for complex investment decisions or excessive risk-taking. All I need to do is make sure I’m saving enough every month and the FTSE 100 will do the rest.
