Now could be one of the best times to buy UK shares. And with that in mind, today I’m going to explain the strategy I’d use to invest £20k in London-listed stocks with the goal of making £1m.
Time to buy UK shares
I think there are a couple of strategies I could use to try and make £1m with an investment of £20,000.
One of the easiest could be to buy a low-cost FTSE 250 tracker fund. Over the past 35 years, this index has produced an average annual return of around 11% to 12%. The combination of mid-cap growth stocks and a steady stream of income, has helped turbocharge returns.
At this rate, I estimate it would take around 33 years to turn an investment of £20,000 in £1m by investing in UK shares.
That’s one strategy. Another approach I would consider using is buying a basket of high-quality UK growth stocks. Some of the best London-listed growth stocks have produced huge returns for investors over the past decade.
A great example is Games Workshop. Over the past five years alone, an investment of £10,000 in this company’s stock has grown into £260,000. That’s an average annual return of more than 40%.
I think it’s unlikely the stock will continue to return 40% per annum indefinitely, but with profit margins of more than 20%, I reckon Games Workshop may continue to earn some of the highest returns of all UK shares.
Unfortunately, finding future growth stars isn’t particularly easy. It’s quite difficult to determine future winners. Even the professionals regularly get it wrong.
As such, if I’m looking to acquire a basket of UK shares with strong growth potential, I think buying a diversified fund is a good idea. There are many options on this front. One of my favourites is the Mercantile Investment Trust.
This investment trust owns a broad selection of growth stocks. Games Workshop is one of its top holdings. The diversification provides a level of protection for investors, and there’s also a dividend yield of 3% on offer. A low annual management charge of around 0.5% is one of the best on the market.
The road to a million
All in all, I believe that acquiring a portfolio of UK growth shares is the best way to turn an investment of £20,000 into a £1m fund. There are several approaches I could use to hit this target, as outlined above.
A portfolio of individual growth stock offers some benefits and may achieve higher returns, but it can be difficult to find future winners in the market.
Buying a low-cost tracker fund or actively managed investment trust is another approach that involves much less effort. These investments may not produce the same kind of returns as some individual equities, but they reduce the chances of making a mistake when picking stocks.
Rupert Hargreaves owns shares in the Mercantile Inv Trust. 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.