There are many ways to shoot for £1m, some of them steadier than others. Take NS&I Premium Bonds for example. If you make £1m by holding them it’ll be down to pure chance. For each one-pound bond number you hold, the chances of winning are one in 24,500.
In other words, you’re unlikely to win anything and, if you do happen to win something, it’ll probably be one of the smaller prizes.
You could wait a long time to win
I recently came across a dusty old Premium Bond certificate my parents bought several decades ago and, in all that time, they never won a life-changing amount of money. I recall the odd five-or-10-pound win, but insufficient to overcome the effect of general inflation eroding the value of their original ‘investment’ in Premium Bonds.
Yet every month, the chance to win a £1m jackpot and other prizes comes around. And there are some advantages. For example, all prize money is free of tax and you can buy Premium Bonds with a minimum investment of £25, or a maximum of £50,000. On top of that, the money you put in Premium Bonds will be “100% secure” because it’s backed by HM Treasury. And you can draw it out again later if you want to.
The idea is that instead of paying interest on your money, NS&I pools all the interest from everybody’s ‘investment’ in Premium Bonds to use as the prize fund. But get this — the annual prize fund interest rate used is running at a paltry 1.4%. I think I’d be marginally better off putting my money in a Cash ISA because at least the compounding interest would go some way towards offsetting the decline in its value due to inflation.
An even poorer deal
That said, I could do worse than buying Premium Bonds – by putting money into tickets for the National Lottery, for example! According to the National Lottery’s own website, the chance of winning the jackpot is 1 in 45,057,474, and there’s a 1 in 7,509,579 chance of getting five numbers plus the bonus ball. In other words, the chance of a major win is vanishingly small. And every pound spent on a lottery ticket is gone forever – you can’t draw it back out again like you can with Premium Bonds.
So maybe I should shoot for £1m by other means. Perhaps by betting on Bitcoin, the price of gold, or on some death-or-glory stock market company with a great ‘story’ but no profits? Not likely. The chances of losing a fortune rather than gaining one are too great with vehicles such as those, for my liking.
A steady course to £1m
Instead, I’m shooting for £1m by steadily investing in shares and share-backed investments, which are backed by companies with good-quality underlying businesses. Growing enterprises operating in strong trading niches can build in value while I hold their shares, which will likely translate to increasing incoming flows of cash, rising dividends, and elevating share prices over time.
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Kevin Godbold has no position in any 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.