If you want to make a million from cash these days, you need a truly massive sum to start off with. Say £950,000. If you put that amount in a typical savings account paying 0.25%, you’d get there in around 22 years. The problem is that the value of your money will have fallen in real terms, eroded by inflation.
That’s why I’m banking on UK shares to make me a million for retirement, as history shows they should deliver a far higher return over the longer run. That means I can start with a much smaller sum than £950,000. In fact, I reckon it’s possible to get there with just £500 a month.
UK shares may be volatile, but that’s the price you pay for their superior growth prospects. You can play safe with cash, but with the big banks paying just 0.01% on easy access, that’s false security. At that rate of growth it would take 525 years to turn £950,000 into £1m.
Make a million from UK shares
My calculations suggest that somebody who invested £500 a month in UK shares from age 25, and made an average total return of 6.5% a year after charges and dividends reinvested, would have £1.2m by age 66. Sadly, not many 25-year-olds have that kind of money at their disposal, or that level of foresight. However, the longer you wait to get going, the more you’ll have to save later.
Investing £500 from 35 would give you £594,201 by age 66, assuming the same growth rates. That’s well short of £1m, but it’s not too shabby either. If you have a workplace pension too, and receive the odd windfall, such as inheritance, you could still make a million.
Otherwise you could increase your £500 payment by 5% a year, and then you would have £1.07m by age 66. Some may be wary of investing during these uncertain times, yet history shows this is often the best time to invest. The FTSE 100 has partially recovered from last year’s traumatic crash, but still trades 12% below its level this time last year.
Start early and stick with it
Vaccine success has boosted investor sentiment, and the UK looks to have stolen a march on other western countries. Many Britons are rightly sceptical of how the UK government has responded to the crisis, but our vaccine success is attracting attention overseas. With Brexit mostly settled, many foreign investors are now sizing up UK shares.
I’m looking to buy a spread of FTSE 100 dividend stocks today, in my bid to make a million for my retirement. Despite last year’s dividend cuts, there are still plenty of top stocks out there. I’m looking beyond today’s short-term uncertainty to the long-term. I’ll be measuring my success in decades, rather than years.
I could never make a million from cash. UK shares are giving me a fighting chance. Although it’ll take a working lifetime to do it.
You could start with this opportunity.
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Harvey Jones has no position in any of the shares 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.