While it is tempting to use your spare cash to buy Bitcoin or National Lottery tickets, investing it in FTSE 250 shares could be a much more rewarding pursuit. Not only could they offer higher returns in the long run, mid-cap shares may lead to an improving financial future that could even end up with you retiring early.
With it becoming easier than ever to invest small amounts in the FTSE 250, now could be the perfect time to use your spare change to build a stronger financial future.
FTSE 250 growth potential
The solid track record of the FTSE 250 suggests that it can produce high returns over a long period. In the last 20 years, for example, it has risen from around 9,000 points to reach its current level of approximately 20,000 points. This equates to an annualised capital growth rate of just over 4%. When dividends are added, the index has the potential to post high single-digit returns over the long run.
The impact of this growth rate on even modest sums of capital could be surprisingly high. For example, investing £5 per day over a 30-year period would produce a portfolio valued at £206,000 assuming an annualised growth rate of 8%. As such, it does not take significant sums of money to produce large portfolios over the long run.
Although in the past it may have been difficult to invest sums such as £5 per day in the FTSE 250, now it is easier than ever. A variety of share-dealing providers offer regular investing services that cost from as little as £1.50 per trade. Therefore, saving £5 per day and investing it on a monthly or quarterly basis in FTSE 250 stocks could be a realistic means of investing efficiently for smaller investors.
Likewise, there are a variety of mobile apps available which provide cost-effective access to the stock market. In some cases, they invest spare change automatically, while others provide greater control for an investor.
Efficient use of capital
Investing regularly in mid-cap shares could prove to be a better use of capital than buying lottery tickets or Bitcoin. In the case of the National Lottery, the odds of winning the big one are one in 45m. Therefore, the vast majority of people are unlikely to financially gain from it. Bitcoin, meanwhile, has no fundamentals and is instead reliant solely upon investor sentiment. As such, it is impossible to accurately value the virtual currency, which could lead to challenging periods for its holders.
As such, now could be the right time to start investing in FTSE 250 shares. Even if you only have a small amount of capital to start with, this can grow to a surprisingly large portfolio in the long run. It could eventually help you to retire early and enjoy financial freedom in older age.
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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.