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£100 a month to invest? I like the stock market for wealth generation

£100 a month to invest may not seem like a huge sum, but it’s a great starting point. If you can afford to put £100 a month away regularly, I say go for it.

Start investing when you’re young and the greater chance you have of serious wealth generation as even a small (but regular) investment can work wonders when it comes to accumulating a future nest egg.

Economic sense

The stock market has a long track record of making people rich. It’s also at the heart of our economy with pension funds, investment portfolios and insurance companies investing large pools of wealth in the financial markets to beat inflation and safeguard future returns.

Nowadays, online brokers like Hargreaves Lansdown and Interactive Investor make it simple for ordinary investors like you and I to invest our hard-earned cash in shares.

I think a Stocks and Shares ISA is the easiest starting point, but if you’re feeling confident, then a Self-Invested Personal Pension (SIPP) is also straightforward.

Accumulating wealth

If you were to invest £100 a month in stocks with an average annual return of 7%, then within 20 years you could accumulate over £52k.

The FTSE 100 index has averaged 7% over the past decade, so even investing in a simple tracker fund could help you realise that goal.

By investing in FTSE 350 companies with decent dividend yields, and reinvesting your gains, along with your monthly contributions, this goal could easily be exceeded.

A monthly £100 contribution, topped up by annual dividends would enjoy a compounding effect, gaining interest on your interest. This means at an average annual return of 10%, you could achieve over £75.5k in the same time frame.

Increase this to a 40-year period and at an 11% return, you could attain more than £867k from your £100 a month.

So as you can see, big wealth generation isn’t just achievable but doesn’t even require huge lump sums.

The Warren Buffett way

Billionaire investor Warren Buffett has been advocating the merits of the stock market for decades now. His personal style is value investing, first introduced to him by Benjamin Graham. The principle of value investing is to buy shares in companies that are trading at a discount to their intrinsic value. That means buying shares in a company that may be currently out of favour, but has enough good things going for it that it’s likely to bounce back and recover.

This may sound simple, but it’s easier said than done and it’s vitally important that research is carried out into a company before you commit to buying shares in it. Studying the company’s annual report and trading updates is a great place to begin, as you can learn a lot from these documents and get a clearer picture of where the business is at.

If you can afford to start investing, then what’s stopping you? The longer you can put your money to work, the more likely you’ll be to achieve future wealth generation or even millionaire status.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.