UK shares may not be seen as an obvious means of making a million by many people. The stock market crash has left the FTSE 100 down by around 20% since the start of the year. Other stocks have produced even worse performances in 2020.
However, the long-term potential of British shares continues to be relatively attractive. As such, they could be a better use of any spare capital than the National Lottery or NS&I Premium Bonds.
Over time, FTSE 100 and FTSE 250 shares could be a sound means of generating high returns. They may even produce a £1m portfolio as their recovery takes hold.
The prospects for UK shares
UK shares may have experienced a poor performance in 2020. However, their long-term prospects continue to be relatively good. For example, the FTSE 100 has always recovered from its previous declines to post new record highs. So its current price level could represent excellent value for money for any investor with a long time horizon. They may be able to fully benefit from the index’s likely turnaround over the coming years.
Certainly, there may be further challenges ahead. Risks such as Brexit and the pandemic may continue to cause weak investor sentiment and difficult operating conditions for businesses. However, previous crises have gradually fade. These have always been replaced by positive GDP growth that produces more attractive operating conditions for businesses. This could lead to improving investor sentiment that allows UK shares to post high-single-digit annual returns over the coming years.
The outlook for NS&I Premium Bonds and the National Lottery
Making a million from UK shares is likely to take many years. As such, some people may decide that the prospect of making a million from NS&I Premium Bonds or the National Lottery is more appealing.
However, low interest rates mean that the Premium Bonds annual prize fund is set to move to just 1% by the end of 2020. While there is still a very slim chance of winning large sums of money, the annual return is similar to that of cash savings accounts. Meanwhile, the odds of winning the National Lottery stand at just one in 45m.
Making a million
By contrast, high-single-digit returns on UK shares can be achieved by almost any investor. Even if someone has only a modest amount of money available each month, they can still generate a large portfolio over the long run. For example, investing £300 per month at the FTSE 100’s annual historic total return of 8% would produce a £1m portfolio within 40 years.
With many stocks currently trading at cheap prices after the market crash, we could all improve our odds of obtaining a seven-figure portfolio by investing in a diverse range of British shares today for the long term.
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.