3 smart moves to help you to retire a millionaire

Paul Summers explains why anyone can become a millionaire, as long as they get the basics right and stay smart.

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.

Investing is a great leveller. You don’t need a background in the City, great contacts or any financial qualifications to become a millionaire retiree. You simply need to make a few smart moves. Here are three of them.

1. SIPP it

As much as we love the standard Stocks and Shares ISA at the Fool UK, we’re just as positive about another tax-efficient account — the Self Invested Personal Pension (or SIPP). As its name would suggest, this savings vehicle is ideal for those whose goal is to build a big nest egg for their golden years.

The great thing about the Self-Invested Personal Pension (SIPP) over the ISA is that it forces you to focus on the long term by preventing you from accessing your money until the age of 55 (rising to 57 from 2028). An ISA, on the other hand, can be raided at whim, which isn’t really conducive to generating wealth for retirement.

Another benefit of the SIPP over the standard ISA is that the government pays tax relief on any contributions you make. Pay in £800, for example, and you’ll receive an extra £200 to invest (assuming you’re a basic rate taxpayer). You can also pay in double the amount you can into an ISA (up to £40,000), although be aware that this allowance may change in the future. 

2. Make time your friend

If you want to make it to millionaire status, you need to make the most of what Einstein supposedly labelled the eighth wonder of the world: compound growth (or interest on interest).

To give you an idea of just how impressive compound growth is, £58,000 will, after 10 years be worth over £150,000, assuming an optimistic-but-not-impossible average annual return of 10%. After 20 years, it will be worth slightly more than £390,000. Stay invested for 30 years and you’ll have over £1,000,000.

To generate this kind of return in reality, however, you’ll need to be comfortable with having most of your cash tied up in stocks. This is vital since equities have consistently been the best performing of all assets over the long term.

To be clear, the longer you stay invested (and the more you save), the better your chances of retiring a millionaire.

3. Become a millionaire on the cheap

Becoming a millionaire is all about learning to buy at the lows and sell at the highs, right? Ideally, yes. The easiest bit of investing advice to convey is, however, also the hardest to achieve in practice.

Very few people are able to get their timing just right; even fewer are able to do so consistently over years of investing. This is why we think it’s a good idea to buy regularly and automate the process as much as possible. Most investment platforms offer their clients the option to buy on a set day every month, thus avoiding the temptation to ‘time’ their purchases.

Another positive to doing this is that it keeps costs low at around £1 per trade (costs vary depending on which platform you use). That’s far better than paying the normal charge of around £10-£12. Over many years of investing, paying the latter can have a huge negative impact on returns regardless of how good a stock picker you prove to be. 

A smart (but always Foolish) investor always endeavours to keep costs as low as possible to reap the rewards further down the line.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »