Building a million-pound portfolio of UK shares and retiring early may seem too good to be true. But I reckon it’s easier than you might think to hit this magic number, even with. fairly modest monthly investment.
In this piece I’ll explain how I’d use just £50 per week to build a stock portfolio that could support you comfortably for the rest of your life.
Here’s how I’d do it
I’ll be honest. I’m not going to suggest investing in the latest hot pharma stocks or tech start-ups. My approach is based on building a portfolio of real businesses that generate profits and surplus cash.
Most of these businesses pay regular dividends which can also be reinvested to buy more shares. Over time, your annual returns get bigger and bigger. This effect is called compounding — it’s the secret to getting rich without needing a massive income.
The average long-term return from UK shares is around 8% per year. Based on a saving of £50 per week, here’s how I think your portfolio value could grow:
Note how the growth speeds up. It takes 17 years to get to £100,000, but only 17 more years to get to £500,000 — another £400k. The final haul to £1m happens even faster, in just eight years. That’s the power of compounding. If you’re patient, you can get rich very easily.
If you’re 22 and you start saving today you could be a millionaire by the time you’re 65, before you hit State Pension age.
UK shares: here’s what I’d buy
Where should you put your cash? It goes without saying that your UK shares should be inside a Stocks and Shares ISA. There’s no sense in paying tax on your investing profits when the government provides a tax-free option.
The simplest option is to invest the money in a cheap FTSE 100 tracker fund. This approach has several advantages. It’s cheap, simple and you can invest as little as £25 without excessive fees.
However, the problem with owning the whole index is that it’s weighted towards low-growth businesses like big banks and oil companies.
My preferred approach is to build an evenly-diversified portfolio of the best companies in the index. Names I’d include on that list include consumer goods firm Unilever, pharma giant GlaxoSmithKline and packaging group Mondi. I’d also include some natural resources stocks — perhaps Royal Dutch Shell — along with some good quality financials such as Schroder.
Most brokers offer regular investing services that allow you to buy smaller amounts of stock on fixed days without paying full dealing charges. I’d use services such as these to build a portfolio of 15-20 stocks. In my experience that’s enough to get a good balance between safety and performance.
Getting rich from UK shares isn’t difficult if you stick to the system and let compounding do the heavy lifting. This is how I hope to retire early — I believe it could work for you too.
The post How you could make £1m from UK shares with £50 per week appeared first on The Motley Fool UK.
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Roland Head owns shares of GlaxoSmithKline and Royal Dutch Shell B. The Motley Fool UK has recommended GlaxoSmithKline, Schroders (Non-Voting), and Unilever. 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.
Motley Fool UK 2020