The Easiest Way To Grow Your Wealth?

As I write these words, my broker is adding to my stake in an interesting-looking, beaten-down engineering company that I’ve had my eye on in recent weeks.
And while I believe the share price to be a bargain at its present levels, one bargain I’m absolutely certain of is the commission I’m paying — just £2, achieved by taking part in the broker’s collective buying scheme, where four times a month it pools its clients’ orders together to make collective purchases at discounted rates.
My instruction: take my accumulated dividends, add in some accumulated monthly subscription payments, and make a small-but-significant purchase, nipping in just before the ex-dividend date next week.

And earlier in the month, similar monthly payments saw me make additional purchases in three of my favourite investment trusts: the venerable Scottish Mortgage Investment Trust, which dates from 1909; the even older Scottish American Investment Company, dating from 1873; and the more recently established Aberdeen Asian Income, dating from 2005. In each case, the trust manager waives the commission fee for monthly purchases, leaving investors only liable for stamp duty.

Proven provenance

As I’ve written before, one reason I do this is because I’ve been privileged to get a glimpse into the personal finances of a number of individuals who have built up very decent retirement nest eggs. Very decent nest eggs, indeed — and ones that have led to an enviable retirement.
Canny investing has played a part, to be sure. And while I might quibble with some of the investment choices that have been made, the broad thrust has been largely correct for the individuals in question. Being risk averse, there’s been a strong preference for ‘big brand’ funds and investment trusts, and FTSE 100 large caps and mega caps.
But what has impressed me much more is where the wealth has come from. Through living relatively modestly, it’s been possible for them to put aside regular sums for investment.
And over time, these modest-but-regular sums have grown into the nest eggs in question.

Too few of us own shares

All quintessential Motley Fool stuff, of course. As we’ve said many times, regular investing can — quite literally — pay dividends.

Put some money aside every month, invest it preferably into a tax-efficient investment vehicle such as an ISA or SIPP, and let compound growth and pound cost averaging do the rest.
The trouble is, all too few people actually do it.
A few years back, the Office for National Statistics’ inaugural Wealth in Great Britain survey, for instance, highlighted that just 15% of households in Britain own shares directly, outside an ISA wrapper. And just 10% of households have a stocks and shares ISA.
In other words, while people might say that they are saving, they’re not saving — and investing — in the asset class that for over a hundred years has by far delivered the greatest returns: shares.

Watch it grow

To me, the huge advantage conferred by saving monthly is that it makes wealth-building relatively painless. A journey begins with a single step, goes the saying — and the journey to potential wealth begins with your first monthly payment.
In short, set up the standing order or direct debit, and forget about it. Not quite enough room in the monthly budget? Go out less, skip those takeaways, ditch the expensive gym subscription — the opportunities are endless.  
And such frugality quickly pays off. Let’s see what happens, assuming net stock market returns — after costs — of 9%, somewhat below the historic long-term average.


Number of Years Invested

Amount invested per month










































From little acorns, grow mighty oaks

As we see, relatively modest sums by way of monthly investments quickly assume life-changing proportions if sustained over the long term.
Better still, with a ‘core’ holding sheltered in a diverse investment vehicle such as a low-cost index tracker or investment trust, it’s possible to more safely make ‘side bets’ — investments in rather riskier individual shares, with potentially market-beating upsides.
To me, the advantages of such a strategy seem obvious. Yet all too few people do it — despite the fact that a lot of brokers and investment firms actively encourage regular monthly saving with free or discounted commission schemes.
One person who saw the light a few years ago is an old family friend I’ll call Sandra. Initially saving modest amounts in an index tracker, Sandra now has decent stakes in some high-yielding FTSE 100 stalwarts — while her low-cost index tracker continues to provide a diversified stake in the market as a whole.
All for a monthly investment amount to little more than the cost of a foregone latte coffee each day.

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Malcolm owns shares in Scottish Mortgage, Scottish American, and Aberdeen Asian Income.