Investing in UK shares, when executed intelligently, is a powerful and proven way to build long-term wealth. So much so that even an investor of modest means can grow a potentially life-changing portfolio that reaches into seven-figure territory. Here’s how.
Aiming for £1m
When looking at the favoured FTSE 100 index, UK shares have delivered an average annualised return of roughly 8% per year over the last few decades. And when combining this rate of return with a 35-year time horizon, investing £435.95 each month into a passive index fund could be all that it takes to reach the coveted £1m threshold.
In this scenario, the total amount invested would be £183,099 to grow a £1,000,018 portfolio – a more than fivefold return thanks to compounding.
Obviously, sitting around waiting for over three decades demands a lot of patience. And while increasing the monthly contributions will accelerate the journey, not everyone has that level of financial flexibility. The good news is, there’s another way to build wealth faster in the stock market.
Into the weeds
The beauty of an index fund is that it puts the wealth-building process almost entirely on autopilot. A simple single investment instantly diversifies a portfolio, automatically rebalances on a regular basis, and handles most of the risk management process.
However, these advantages come at a cost of performance. Index investors will only ever match the performance of the market, never beat it. This is where stock picking has the upper hand.
It’s a much more involved process and requires taking on more risk. But it also opens the door to potentially market-beating returns.
The power of stock picking
Let’s take a look at Next (LSE:NXT) as an example to consider. Investors who spotted this retailer early on have earned some pretty phenomenal gains. In fact, over the last 30 years, the share price alone has risen a staggering 2,909%. But when including the impact of dividends, the total return is actually a gargantuan 7,734%!
That’s the equivalent of earning 15.7% per year. And it’s enough to cut the journey to reaching a million down to just 22 years.
This staggering performance has been driven by a variety of factors, including disciplined capital allocation, impressive resilience during economic wobbles, and adaptability to consumer tastes as well as spending habits.
In 2025, Next is leveraging its strong balance sheet to support an overseas expansion that’s replicating its winning formula. So far, it seems to be working with its international online segment expanding rapidly, paired with rising net margins. That’s why management recently raised its full-year guidance for 2025 despite macroeconomic uncertainty.
However, the business still has its fair share of challenges. Weaker consumer sentiment in the UK is a headwind that might intensify. With higher minimum wages and National Insurance hikes, British margins are under pressure since the group’s ability to pass on costs is limited. And if non-UK earnings falter, profitability will likely suffer.
Investors probably won’t continue to earn a 15.7% annualised return moving forward. After all, the business is significantly larger today versus 1995. Nevertheless, given its impressive track record, I remain optimistic that Next will successfully navigate through the currently challenging retail environment. That’s why I think the shares are worth a closer look.
