Is it really possible for an investor to double the retirement income of the current State Pension by simply skipping their morning coffee and investing the money into UK shares?
As it turns out, with the right strategy, the answer’s yes. And there are already countless investors aiming to build a chunky nest egg to secure a more comfortable retirement. Here’s how.
Building a custom portfolio
Today, a decent cup of coffee in London will, on average, set you back roughly £4. Alone, that doesn’t seem like much. But buying a cup of Joe each day quickly adds up to roughly £122 a month.
But what if this money were invested instead? On average, the UK stock market generates a total annualised return of roughly 8%. Investing £122 a month at this rate with a brand-new portfolio would gradually compound over time and eventually start snowballing. So much so that after 37 years, an investor would have accumulated £331,400.
When following the 4% withdrawal rule, that’s enough to generate a £13,256 passive income, allowing investors to more than double the income provided by the UK State Pension alone.
Of course, waiting for a lifetime is far from ideal, yet by crafting a custom portfolio rather than relying on index funds, it’s possible for this journey to be drastically accelerated.
That’s because with a custom portfolio, investors can go on to earn market-beating returns. And while that can prove tricky, even a modest improvement can cut years from the waiting time without needing any extra capital.
| Average Annual Portfolio Return | Approximate Time To Reach £331,400 By Investing £122 Per Month |
| 8% | 37 Years |
| 10% | 32 Years |
| 12% | 28 Years |
| 14% | 25 Years |
Aiming for 14% gains
Cutting 12 years off the waiting time sounds great. But it’s important to recognise the difficulty of actually earning a 14% annualised return. Investors will need to identify a business with ample long-term growth potential, protected by a wide moat of competitive advantages.
That’s a pretty rare combination. But as long-time shareholders of Diploma (LSE:DPLM) know, finding these hidden opportunities can be immensely rewarding.
Through its strategy of executing bolt-on acquisitions and improving operations to fuel organic growth, the business steadily dominated niche engineering sectors often protected by regulatory barriers to entry.
This unique combination of acquisitive and organic growth alongside limited competition enabled the business to deliver jaw-dropping, long-term returns.
Fun fact: since February 2006, Diploma shares have generated an average annualised return of 22.5% – enough to transform £122 a month into a £555,300 nest egg!
Still worth considering?
At a market-cap of £7.2bn, it’s unlikely Diploma shares will continue generating a 20%+ annualised return. But that doesn’t mean the growth story’s over.
In 2026, the business is still posting impressive double-digit growth and continues to pursue new opportunities in sectors like aerospace, datacentres, and biotech diagnostics.
Obviously, that doesn’t guarantee Diploma will continue to outperform. Its reputation for quality isn’t exactly a secret in 2026, with the stock priced for near perfection. And as with any acquisition-oriented growth strategy, there remains continuous execution risk.
If acquired businesses fail to live up to performance expectations, shareholder value could end up being destroyed – a risk that investors have to consider carefully. Nevertheless, with such an impressive track record, taking that risk has so far proven exceptionally lucrative.
That’s why, despite the premium valuation, Diploma shares may still be worth a closer look in 2026.
