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Here’s how I’d invest £20k to make a million

Over the past 100 years, the stock market has created trillions of pounds of wealth for investors across the UK.

However, some investors have fared much better than others. That’s because investing isn’t particularly easy. It can be quite challenging to pick the right stocks for long-term investment. Indeed, even the professionals get it wrong on a regular basis.

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But it has never been easier to invest in the markets that it is today. Online trading has pushed down costs, and now stockbrokers are fighting over each other to offer the best deals for clients.

By taking advantage of these deals, investors can turn a relatively modest lump sum of £20,000 into a fortune of £1m in the long run.

There are many ways you can invest this lump sum to make £1,000,000. The easiest strategy is to invest in a low-cost FTSE 250 tracker fund.

How to make a million

The past performance of the FTSE 250 is very impressive.

Since its inception, the mid-cap index has returned around 12% per annum, including dividends. At that rate of return, you could double your investment in the index every six years.

However, there are a handful of other companies that have produced even better returns.

For example, shares in global distribution group Bunzl have returned around 14% per annum over the past decade. The company has been able to achieve this growth through a combination of organic expansion and bolt-on acquisitions.

Meanwhile, investors in consumer goods giant Unilever have seen their investments grow by 15% per annum since 2016. And shareholders of construction equipment rental group Ashtead have seen a return of 41% per annum over the past decade.

Finding companies that can generate mid-teens returns on your investment is difficult, but it is not impossible.

One common trait

One common trait of all the above companies is the fact that they offer a unique service where size is critical. They can then use economies of scale to outperform the rest of their industry.

Buying businesses that exhibit similar qualities, or just purchasing the companies above, could help you achieve similar returns on your investment over the next few decades.

£20,000 invested at a rate of 15% per year would grow to be worth £1m within 27 years. That is assuming no additional money is added to the pot along the way. Additional contributions of just £50 a month would help you meet this lofty savings target two years earlier.

Further contributions of £200 a month would get you to the £1m target in 22 years.

Conclusion

As shown above, a strategy built around finding the market’s best growth and income stocks could help you create a seven-figure portfolio in just a few decades.

This process may take time, but when saving for the future, it is better to take things slowly and find the right investments rather than rushing into high-risk stocks. Doing so could potentially cost you a lot of money if the trade goes wrong.

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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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.