Many investors wrongly believe making a million in the stock market is an impossible task. But you don’t need the world’s highest IQ or access to unique insights to hit this lofty target. I believe that all you do need is time, patience, and the FTSE 100.
A set plan
I think the most crucial tool investors have available to them when saving for the future is time. The longer you have to save, the more time there is for the power of compound interest to work its magic. So, if you want to make a million in the market, it’s better to start saving sooner rather than later.
And the best way to invest in the market is, in my opinion, a regular investment plan. Most stockbrokers now offer a monthly plan, which allows you to set up a direct debit and choose the investments you want to buy. The platform then handles the rest of the process for you.
When you’ve set up the direct debit and monthly investment instruction, there’s absolutely no further effort required on your part.
I believe the best investment to buy is the FTSE 100. This will give you a diversified portfolio of some of the world’s largest companies with investments and revenue streams from around the world, all at the click of a button.
Over the past decade, through a combination of capital growth and income, the index has produced an average annual return for investors in the region of 7%.
I think this trend can continue as long as company earnings continue to grow at a rate equal to, or above, the rate of inflation. When combined with the index’s dividend yield of 4.5%, this earnings growth should help contribute to a total annual return in the region of 7%.
At this rate, I calculate a saver would need to put away just £182.50 every single month for 50 years to make a million. That works out as a daily contribution of £5.
Investing for the future
If you don’t have 50 years to save, it’s still possible to make £1m in the stock market with the FTSE 100, although you might need to put away a little bit more every month.
Indeed, I estimated monthly contributions of £400 (£13.15 per day) would be required to accumulate a savings pot of £1m over four decades, assuming an average annual return of 7%. Over three decades, my numbers show a monthly contribution of around £800, or £26.30 per day, would be required to make a million.
So that’s how you could make a million in the stock market with just £5 per day. It isn’t easy to hit this target, and it won’t happen overnight, but it’s straightforward if you have a set savings and investment plan in place.
All a saver needs to do is make sure they have enough money available every month to meet the direct debit requirement.
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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.