You don’t need to be a maths whizz or well connected City stockbroker to be a good investor. Indeed, today anyone can open up an online share dealing account with a small deposit. Most online stock brokers also offer regular investment plans, starting from as little as £50 a month.
Therefore, if you can make the most of these offers, it’s relatively straightforward to make a million in the market. All you need to do is set up a regular contribution plan, sit back, and relax.
The best index
The best way to invest your money with a regular contribution plan is to buy a low-cost passive tracker fund. The great thing is they don’t require any babysitting or additional work on your part.
Passive tracker funds only replicate their underlying stock indexes. As a result, all you need to do is pick one or two, and that’s really it. You don’t need to monitor these funds to make sure their managers aren’t straying into inappropriate investments.
For UK investors, the two best indexes to track are the FTSE 100 and FTSE 250. Since inception, the FTSE 100 has produced an average annual return for investors of around 9%. Meanwhile, the FTSE 250 has returned approximately 12%. So it seems that if you’re looking to get the most bang for your buck, the FTSE 250 is the best index to track.
The best low-cost FTSE 250 tracker fund on the market at the moment charges just 0.10% per annum in management fees. This excludes stockbroker platform costs. These fees could add 0.40% per annum on top, although some providers charge much less.
Keeping costs low is vital if you want to get the most out of your money. For example, an investment of £100 a month in the FTSE 250 would be worth £1m after 39 years. That’s assuming an average annual rate of return of 12%, and excludes costs and charges.
However, if you end up paying 2% per annum in fees, your nest egg would be worth just £507,000 after 39 years. Keeping total costs below 0.5% would allow you to hit the £1m benchmark in 41 years.
Slow and steady
It’s relatively straightforward to make £1m in the stock market if you stick to a regular investing plan and keep costs low. The FTSE 250 is an excellent index to track for this purpose because it offers exposure to some of the UK’s fastest-growing companies.
Many of its constituents also have an international presence. This should give investors some diversification away from Brexit uncertainty.
The most important thing to remember is that becoming a millionaire won’t happen overnight. It takes time and patience. But as the figures above show, as long as you can meet the monthly contribution target and let the market take care of the rest, making a million with the FTSE 250 isn’t impossible.
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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.