Do you know what your chances are of winning the National Lottery? Every time you buy a ticket, you are taking a 14 million-to-one shot.
Avoid the lottery
It could be you, but it could just as easily be one of 13,999,999 other people. I don’t want to wreck your fun, but you need a back-up plan in the extremely likely event that you do not hit the jackpot.
So here’s another idea.
A surer way of becoming a millionaire is to invest regular monthly sums in a tax-free Stocks and Shares ISA. I’m not pretending this will make you a millionaire overnight, even if you put in relatively large sums, we are still talking decades. However, even if you don’t hit that seven-figure sum you should still end up with a handsome nest egg to see you through your final years.
Turning 50p into a million
Next week, on 14 October, it will be exactly 50 years since the 50p piece entered circulation in 1969.
New figures from Sarah Coles, personal finance analyst at Hargreaves Lansdown, show that if you’d invested 50p in cigarette giant British American Tobacco on the day the coin was launched, your investment would be worth £1,720 today. If you’d invested 50p every single day those shares would be worth more than £12m, thanks to a combination of share price growth and reinvested dividend income.
Setting aside 50p a day for 50 years would cost you £9,125. Turning that into £12m looks like a pretty good return to me.
My favourite investment trust, Scottish Mortgage Trust, would also have done you well, turning 50p a day into £2.8m over the last 50 years.
British American Tobacco was the best performing stock on the UK market over the last 50 years. Sadly, not every stock has done that well. A balanced portfolio would still have made you a lot more money than leaving your money in the bank.
Time to cash out
We spend our days at the Motley Fool talking up the superiority of stocks and shares over to cash, and the next two figures show why. If you had put 50p in the typical easy access bank account 50 years ago it would be worth just £6.48 today. By contrast, the same 50p invested in the UK market on the same day would now be worth £126.
That is 20 times as much.
If investing for the long-term, then stocks absolutely thrash the returns on cash.
So what will investing 50p a day do over the next 50 years? If you put it into a stock market index tracker that grew at 5% a year after charges, it would be worth more than £40,000 by my calculations. If the fund grew at 7% a year, which is closer to the FTSE 100 long-term average, you would have a pretty handsome £79,385.
Pimp your contributions
Now 50p a day only works out as just over £15 a month, or £182.50 a year. You really need to be saving a lot more than that.
If you increase that to £5 a day, roughly £150 a month, and your investment fund grows at 7% a year for 50 years, you could end up with £793,850.
Lift that contribution to £200 a month and you could end up with £1,043,966 after 50 years. It is even possible to become an ISA millionaire in 20 years.
