Legendary investor Warren Buffett has called Bitcoin a “delusion” and something that “attracts charlatans”. It’s hard to argue with that in light of the huge amounts of cryptocurrency thefts and stories of owners of the virtual currencies running off with the money. Others who’ve criticised cryptocurrencies include JP Morgan boss Jamie Dimon who said they were “only fit for drug dealers, murderers and people living in North Korea”.
Anyway, you can see that I, like many others, am a cryptocurrency sceptic and always have been, even when the price was soaring in 2017. It’s now far below that peak meaning many ‘investors’ will have lost money speculating.
A better way to become a multi-millionaire
A far better way to become rich is to max out your ISA annually, assuming of course you’re in a financial position to set aside £20,000 a year. That’s equivalent to £1,666.66 per month.
If you do this, even without any money in an ISA to start with, and you achieve 8% annual growth, it will take 31 years to make £2m. If you start with a portfolio worth £50,000 the timeframe comes down to 29 years. The key is to set aside as much as you can and ensure your portfolio can grow strongly year after year.
Another factor – and this one can be difficult – is to have patience. Investing in Bitcoin shows how many people are just speculators rather than long-term investors. If you invest in the stock market though, the chances of becoming a multi-millionaire are far higher over time.
If like many others you can’t fully use your ISA allowance, setting aside a more realistic figure like £600 per month works out at getting to the £2m mark after 40 years, which still isn’t bad. With more growth, it would be even quicker than that.
Achieving more than 8% annual growth
It’s possible to achieve an annual growth rate of more than 8%, but many online calculators give the impression this is the maximum rate an investor can expect to achieve. I don’t agree. Although year after year that’s an undeniably good rate of return, it’s possible for an individual investor to do better.
The average dividend yield of FTSE 100 shares currently stands at just over 4%, while for the FTSE 250 it’s 3%. Dividends have been shown to play a crucial role in helping investors achieve bigger returns from their investments, so it’s important to reinvest dividends back into buying more shares. The yield will be a key part in achieving growth of more than 8% a year.
To be able to do that, it’s important to own dividend-paying shares in the first place. If you earn 4% on your dividend-paying shares one year and reinvest that money in shares, then the next year’s 4% will be paid on the larger amount (as well as on the extra money you will have saved and invested in the meantime). And if the company increases its payout annually, that’s another boost.
Although Bitcoin will have made a few individuals very rich, for most it has been a poor investment. I’d much prefer my chances of becoming a multi-millionaire by saving as much as I can into an ISA that is filled with dividend-paying shares.
The post Forget Bitcoin! Here’s how I’d make £2m from shares appeared first on The Motley Fool UK.
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Andy Ross owns no share 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.
Motley Fool UK 2020