Suppose I chose one random second from all the minutes, hours, days and weeks between now and March 2021. How would you fancy your chances of naming that exact second? Try it: year; month; day; hour; minute and second. The odds are actually about 45m to one — the same as winning the UK Lotto jackpot.
You could spend countless lifetimes doing the Wednesday and Saturday draws at £2 a time without ever winning the big money. Instead, I’d aim to make a million by investing in the stock market. You may be surprised to learn how achievable £1m is.
When most people think of the UK stock market, it’s the FTSE 100, which is made up of the biggest 100 companies listed in London. However, the FTSE 250 — consisting of the next 250 largest companies — has delivered higher long-term returns for investors.
Over the last 10 years, the HSBC FTSE 100 Index Retail Accumulation fund, which tracks the performance of the FTSE 100 (less a small annual management charge), has delivered annualised growth of 7.19%. Over the same period, its FTSE 250 counterpart has delivered 10.44%.
It seems the giants that dominate the FTSE 100 don’t have the same scope for dynamic growth as many of the somewhat smaller firms in the FTSE 250. For this reason, I’d look to the latter to aim to make a million.
From £208 to £1m
Doing the Wednesday and Saturday Lotto draws for a year costs £208. Suppose you put that money into the aforementioned HSBC FTSE 250 fund instead. How many years would it take to turn £208 into £1m, assuming annualised growth of 10.44%? A bit less than 86 years is the answer.
This doesn’t take into account inflation, but it demonstrates the stock market’s ability to multiply small sums of money into very large sums over long periods.
Getting to a million quicker
Of course, we’d all want to get to a million long before 86 years. There are two ways we can aim to slash the length of time. The first, and surest, is to increase the amount we invest above that £208, and to keep investing — and increasing when we can — every year.
The second way, which is more difficult, is to aim for a higher growth rate than the index by picking a portfolio of individual stocks. With some skill, judgement and luck, it’s possible to pick more of the index’s top performers and less of its poorer relations.
For example, investors who spotted the potential of food-on-the-go firm Greggs 10 years ago, have since enjoyed an annualised return of 19.04%, far ahead of the FTSE 250 tracker’s 10.44%.
Similarly, those who saw the growth opportunity of property portal Rightmove have revelled in a stunning 25.95% over the period (turning £208 into over £2,080), and seen the company promoted to the FTSE 100.
This is why I’d forget the National Lottery and aim to make a million with FTSE 250 shares.
Finally, remember those 45m seconds between now and March 2021 I mentioned at the start of the article? Did you think of one? The one I had in mind was the 59th of the 59th minute of the 11th hour of 1 April. Stop being foolish and start being Motley Foolish!
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.