It might seem silly to suggest that you can build a small fortune of £100,000 with a regular monthly investment of just £100, but my figures showed that this really is possible.
Unfortunately, with interest rates where they are at the moment, it won’t be possible to hit this goal with cash savings.
So, if you want to make £100,000 with just £100 a month, investing in the stock market is your best option.
Investing might seem like a daunting prospect, but today there are plenty of different tools out there that can help you streamline and simplify your investment process. These include robo advisors, online educational resources, and foundation fund lists provided by the big online brokerages.
According to data compiled by analysts at investment bank Credit Suisse, over the past 100 years, UK stocks have produced an average annual return of around 5.5% after inflation.
While past performance figures should never be used as a guide to future returns, the fact that this number was compiled using 100 years of trading data makes it a good benchmark to use to calculate the potential profits equity investors could achieve going forward.
My figures show that it would take around 27 years of saving £100 a month to build a £100k savings pot at this rate of return (adjusted to include inflation of 2%).
However, this returns figure is just an average. Some funds have put up a much better performance than the market over the past 10 to 20 years. Funds with international equity exposure have produced particularly compelling performances.
For example, the Scottish Mortage Investment Trust, which focuses on finding the best growth stocks around the world, has returned around 11% per annum for its investors over the past five years.
At this rate of return, I estimate it would take 21 years of saving £100 a month to build up a rainy-day fund of £100k.
So, that’s how I would turn £100 a month into £100,000. The figures above are just a rough guide and there’s no guarantee they will be replicated going forward. Nevertheless, I believe the numbers show just how easy it is to accumulate a substantial savings pot – if you are putting away a little every month and investing sensibly
The key here is to make sure that you are saving regularly and putting your money to work either in a tracker fund or actively managed investment trust that has a good track record of generating value for shareholders. Buying single stocks isn’t that sensible with just £100 a month because it will be challenging to build a diversified portfolio without incurring huge costs.
Instead, investment trusts like Scottish Mortgage or passive funds, like an FTSE All-Share tracker will give you access to an instantly diversified portfolio at the click of a button. No extra effort will be required on your part, and most stockbrokers offer a regular investment plan, which costs only a few pounds every month. It’s worth subscribing to this if you’re serious about getting wealthy.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.