The idea that you can make a million is the stuff of dreams. For most people, that’s how it will remain, a dream. Yet it can be done, if you put your mind to it.
Personally, I think the safest way for most people to make a million is to invest in stocks and shares, just don’t expect to hit your target overnight. You need to invest regularly, month after month, year after year, to stand a chance of getting there.
Put aside all thoughts of making some incredible stock pick that bags you a million all by itself. The chances of investing in the next early-stage Apple or Amazon are vanishingly thin. Frankly, you might as well rely on the Lottery.
Would you like to make a million?
The safest way to make a million from the stock market is to invest little and often, every time you have cash to spare. If you start early enough in life, you could be doing that for 40 years or more. Viewed in such terms, building a large amount of wealth on the stock market becomes doable.
Let’s say you start investing £500 a month at age 25 and made an average total return of 6.5% a year after charges. By age 65 you would have £1.12m. You’re there! To make a million this way, you have to reinvest all your dividends for growth.
Now £500 a month is a tall order at age 25, but here’s another route. Start with £350 a month and increase your contribution by 3% a year. That way you’d have £1.17bn by age 65. Or retire a little later, which means you can invest for longer. If you start with £250 a month you would have £1.2bn by age 70, with a 3% annual uplift in your contributions.
Naturally, late starters face a bigger challenge. To make a million from a standing start at 40, you would have to invest £1,000 a month until age 65, with that 3% uplift.
Invest tax-free in an ISA
Even if you do not make a cool million, you will not regret investing in shares. Over the longer run, I reckon this is the best way of building your long-term wealth. If you fall a few hundred thousand pounds short, don’t worry, you’ll still have a sizeable pot of money at your disposal. It will make your retirement far more comfortable.
Best of all, if you invest inside your Stocks and Shares ISA allowance, that money will be free of income tax and capital gains tax for life. Off the top of my head, I cannot think of any other legal way of making a million without paying any tax on it during your lifetime.
That’s how I plan to build my retirement wealth. I almost certainly will not make a million, but one thing is sure. I’ll be better off for trying.
