Being able to make a million in the stock market with just £200 a month might seem like an unrealistic goal at first. However, according to my figures, it is possible to build a nest egg of this size with a disciplined savings and investment plan.
Today, I’m going to explain how you can hit this target without having to lift a finger.
Regular investing
Today, most online investment platforms offer a regular investment plan. These plans start from around £10 a month and allow you to invest as much as you want every month. You don’t need to initiate the trade yourself, all you need to do is set up a plan and a direct debit, sit back and relax, although you do need to choose which investments you want to buy.
Based on its past performance, the FTSE 250 looks like it could be a great investment to help you make a million.
You can invest in the market with a low-cost passive tracker index fund. The cheapest on the market at the moment charges 0.18% per annum in management fees, and you can get a substantial discount on this cost if you buy the tracker fund through certain brokers.
Booming returns
The near-term outlook for the FTSE 250 might be cloudy due to economic and Brexit uncertainty. Nevertheless, over the long run, the outlook for the index is set to improve as these uncertainties recede and economic growth returns.
Since its inception, the FTSE 250 index of companies has produced an average annual return of around 12%. At this rate of return, I calculate that a saver would be able to build a £1m nest egg after 33 years of saving £200 a month.
Stocks and Shares ISA
A Stocks and Shares ISA can help you meet this target in the most tax-efficient manner. These investment wrappers allow investors to avoid capital gains, income and dividend tax on money held within them, which means they can significantly reduce your tax bill in the long run.
This is particularly important for higher rate taxpayers, who could lose a large chunk of their savings to the taxman now that the dividend allowance has been reduced to just £2,000 a year.
The simplicity of a Stocks and Shares ISA means that it is a straightforward way to maximise your returns, and any investor can open one of these products. Maximum contributions of £20,000 a year are allowed. So there will be no problem with contributions of £200 a month, or £2,400 a year. Most ISA providers also allow savers to set up a regular investment plan.
As such, if you are serious about making a million in a stock market, now could be a great time to set up a stocks and shares ISA to make the most of the tax advantages offered.
