Whenever I write that you can make a million from investing in FTSE 100 shares, I do a double take. Is that really possible, for ordinary people?
A million pounds is an awful lot of money. If you can save that much, you will feel rich and be free to retire early. Unfortunately, you won’t make it overnight. I don’t want to be misleading here.
I have another worry. I don’t have a once-in-a-lifetime stock tip up my sleeve, that will make you a million if you buy it today. I didn’t spot the last Amazon or Apple, and I couldn’t direct you to the next one, either.
Investing in FTSE 100 shares does not work that way. There is no fast-track to making a million, and no magic wand either. Instead, you have to work at it. By building a balanced portfolio of shares and holding them for the long term, while reinvesting all your dividends for growth.
Start early, save often in FTSE 100 shares
To have the best chance of making a million from shares, you should ideally start early. If you are in your 20s, you have an edge. Retirement is 40 years away.
You could turn £500 into a million, provided you invest that sum every month. If you started at age 28 and made an average total return of 6.5% each year after charges, by age 68 you would have £1.12m.
People in their 20s have other priorities, though. Paying down debt, saving for a property deposit, having fun, and so on. Covid-19 is set to make life harder for young people, with job losses set to mount once furlough ends in October.
Everybody should have an emergency stash of cash on easy access to cover six months of rainy day spending. After that, long-term funds should go into the stock market. Equities will make your money work harder than almost every other asset class.
You can be rich even if you don’t make a million
If you are in your 30s or 40s, you will have to work and invest harder to make that million. I’m afraid £500 a month won’t do it. Starting at 38, you would have to invest £1,000 a month, which would give you £1.1m on retirement, with the above growth rates.
That assumes you are starting from scratch. You may already be well underway, if you tot up your various pension and ISA holdings.
If retirement is just 20 years away, you have to put your foot down. That would mean saving the equivalent of £2,000 a month. Luckily, you are unlikely to be starting from scratch. Existing pensions and ISAs will be your launchpad.
The later you leave it to make a million, the harder it will be. There is one consolation, though. Even if you fall short, you could still have hundreds of thousands of pounds.
If you invest inside a Stocks and Shares ISA, that money will be free of tax for life.
Harvey Jones has no position in any of the shares 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.