Investing in UK shares is a proven way to build substantial wealth in the long term. Given enough time, top-notch companies will most likely create and deliver value to shareholders, translating into far improved wealth. What’s more, it doesn’t even take that much capital to potentially end up in millionaire territory with a five-figure passive income. Here’s how.
Building a portfolio in 2024
Constructing a custom portfolio can be a daunting task. But thanks to the invention of low-cost index funds, the process can be largely automated. Instead of picking individual shares, investors can just mimic the returns of a benchmark index like the FTSE 100 through one of these special vehicles. And while there are some fees to consider, most are almost entirely negligible at around 0.05% per year.
Historically, the UK’s flagship index has delivered total returns of around 8% per year. Let’s assume this continues to be the case moving forward. How much can investors expect to earn over the course of a 40-year career when investing different sums each month?
| £100 /month | £200 /month | £300 /month | £400 /month | £500 /month | |
| 5 Years | £7,350 | £14,695 | £22,040 | £29,390 | £36,740 |
| 10 Years | £18,295 | £36,590 | £54,885 | £73,180 | £91,470 |
| 20 Years | £58,900 | £117,805 | £176,705 | £235,610 | £294,510 |
| 30 Years | £149,040 | £298,070 | £447,110 | £596,145 | £745,180 |
| 40 Years | £349,100 | £698,200 | £1,047,300 | £1,396,400 | £1,745,500 |
Looking at these numbers, investing £500 a month to have over £1.7m at retirement is a pretty exciting prospect. Even more so when following the 4% withdrawal rule. After all, that translates into a passive income of £69,820 per year!
Moreover, investors could end up with significantly more by adopting a stock-picking strategy. By carefully selecting their own positions, it’s possible to achieve market-beating returns. And when compounded over decades, even an extra 1% in annualised returns can lead to enormous additional gains.
| £100 /month | £200 /month | £300 /month | £400 /month | £500 /month | |
| 40 Years with +1% Returns | £468,130 | £936,270 | £1,404,400 | £1,872,530 | £2,340,600 |
Risk versus reward
Becoming a multi-millionaire is a common financial goal for many investors. And even if it takes 40 years to achieve, it could provide the financial freedom needed to live a comfortable life of luxury. Sadly, when it comes to investing, there are never any guarantees.
Stock picking comes with a lot of additional risks, especially for newer investors who aren’t familiar with the dynamics of the stock market – something that can only really be taught through experience. But even those following a passive index investing strategy may fall short of their goals.
Don’t forget these figures are based on the assumption that the FTSE 100 will continue to deliver its historical returns moving forward. In practice, this may not be the case as the gains could be higher or lower. Meaning there’s a possibility that investors could end up with considerably less than expected.
Nevertheless, even with these considerations, the stock market continues to be one of the best wealth-building tools in my mind. The journey is rarely a straight line. But given sufficient time and dedication, systematically investing a chunky lump sum each month could be the key to financial success.
