People really do get rich with shares. The growing army of UK Stocks and Shares ISA millionaires proves that.
But how can you do it? And if you attempt to build wealth with shares, does it mean sacrificing your lifestyle now and saving every penny you can get your hands on? The answers to those questions may surprise you. Indeed, the process of getting rich with shares may prove to be easier than you think.
How £15 a day can help you get rich with shares
If you can commit to investing £15 per day, you could be on course to make a million from shares. The reason I’m so sure is that the long-term performance of shares overall has historically delivered annualised returns somewhere close to 7%. I think shares will likely go on out-performing other major classes of asset and keep on delivering annualised returns close to 7%.
We can use one of the many online compound interest calculators to see how long it would take to accumulate a million. Investing £15 a day works out at just over £456 per month. And a monthly payment into a Stocks and Shares ISA, or Self-Invested Personal Pension (SIPP), would be a good practical way to proceed.
You can arrange an automatic transfer from your bank, for example, perhaps set up to leave just after your wages arrive. The calculator tells me that investing £456 each month and earning a 7% annualised return would take 39 years to accumulate just over a million pounds.
And a long-term investing strategy is perhaps the easiest way to get the magic of compounding working for you. For example, the calculator tells me that you’d have invested £213,408 over those 39 years. But the returns you’d have earned would be £840,534. It’s amazing how well compounding can work over long periods of time.
Aiming for higher returns
But a fair criticism is that 39 years is a long time. However, small increases in the annualised return you achieve can make big differences in shortening the amount of time it takes to get to a million. If you earn an annualised 10% return, for example, you’ll have just over a million after 31 years. And after 39 years you’ll be sitting on a pot worth a little over £2.3m.
So, seeking higher annualised returns can give you a big payoff. That’s why many investors aim for bigger returns by carefully selecting the shares of individual companies. And, with some investing experience under your belt, you could do the same. But to begin with, many start by investing in collective, passive investment vehicles, such as managed funds and trackers. Held within an ISA or a SIPP, those investments could help you get the compounding process going.
Indeed, with funds and trackers, you get instant diversification across many underlying companies’ shares. The trading costs are often low, and you can start investing with as little as £25, in many cases, which would be ideal for your regular monthly investments.
Kevin Godbold has no position in any 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.