I believe it’s possible for ordinary people to make a million from investing in UK shares, but I’m not saying it’s easy. If you want to generate a seven-figure sum from the stock market, you’ll have to put your back into it.
That means buying shares regularly throughout your working life, whenever you have money to spare. It also means taking advantage of moments like now, when UK shares are available at bargain prices due to the stock market crash.
Building a million-pound portfolio will take time. Anybody who hopes to get rich overnight from UK shares is destined for disappointment. Investors who do try to make fast money from investing in the stock market are likely to lose money quickly instead. I’d advise against it.
UK shares can make your rich
Don’t put your faith in one or two early-stage start-ups to make you rich, by miraculously turning into the next Amazon. Experienced investors know they’re a thousand times more likely to disappear without trace. At the Fool, we believe the best way to invest in UK shares is to build a balanced portfolio, comprising mostly of top FTSE 100 stocks.
We particularly like stocks that pay a regular dividend, and aim to increase shareholder payouts, year after year. They’ve become harder to find due to the Covid-19 pandemic, but there are still plenty of top income stocks out there if you know where to look. These two could get your portfolio underway.
The key is to buy a spread of UK shares you aim to hold for the long term, and reinvest all the dividends you receive for growth.
Don’t underestimate the power of the dividend. Figures from fund manager Schroders show that over the 20 years to 31 December 2019, the UK’s FTSE 100 index rose by just over 600 points to 7,542, a rise of just 8.8%. If you had reinvested all your dividends for growth, your total return would have been 122%. That’s an astonishing difference.
Make a million in the stock market crash
I would recommend setting up a regular savings plan, so the money leaves your account every month. Split your monthly contribution between several shares for diversification. Then when you have cash to spare, use that to buy UK shares as well.
You should aim to be particularly active in the wake of a stock market crash. That way you’ll pick up more stock for your money. Finally, remember to buy your chosen UK shares in a Stocks and Shares ISA, for tax-free returns.
Making a million isn’t a magic trick. It doesn’t require brilliant stock-picking skills. You just need to invest regularly in UK shares over the 40 years of your working life and leave your money to grow. The best time to start is today.
