Putting money into the National Lottery gives you a vanishingly small chance of winning a lot of money and a big chance of losing all the money you put in.
NS&I Premium Bonds will give you a very small chance of winning a lot of money but with the advantage that you won’t lose the money you put in. That strikes me a slightly better deal than the Lottery, but the chances of winning are still small and, over time, your ‘investment’ will lose its value because of inflation – Premium Bonds pay no interest.
Bunging money into Bitcoin and other cryptocurrencies is just a gamble, too, in my view. It could go up, it could go down, you may win a little or a lot – you may lose a little or a lot.
Instead of Premium Bonds, the National Lottery and Bitcoin, I’d rather aim to build a fortune steadily by investing in shares and share-backed vehicles on the stock market. Shares are generally supported by underlying businesses that can work hard at building value while you hold them, which can lead to steady dividend income and capital appreciation from rising share prices.
Here’s my plan for building a £1m portfolio with shares, which could be used to fund your retirement or for other purposes.
The key to getting rich with shares is to invest regularly. Over a working lifetime, regular monthly investments can add up to a lot. It almost goes without saying that we should invest as much money as we can each month and target investments with the highest rate of return that we can, whether that return is from dividend income, capital appreciation from rising share prices, or both.
Also, it pays to choose a tax-efficient investment wrapper such as workplace pension schemes, Self-Invested Personal Pensions and Stocks & Shares ISAs.
The principle of compounding drives wealth-creation. Ploughing dividends and capital gains (when you sell an investment) back into your stock holdings will really boost your investment pot.
The exciting thing about compounding is that it works exponentially, meaning that the size of your returns will accelerate over time.
Passive versus share picking
The stock market is a versatile place, offering investments to suit all types of investor. You could go for passive, hands-off investments such as index tracker funds, or managed funds. With those, you just select them, put your money in every month and then wait.
Or you could take a more active approach to your investing and pick your own individual shares. If you do that, you’ll need to put in a lot more time to manage and monitor your investments, but the rewards could be worth it.
Either approach can work well, or even a combination of the two. But whichever approach you choose, I think the route to a £1m portfolio will likely be steadier with shares than going for Premium Bonds, the Lottery, or Bitcoin.
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Kevin Godbold has no position in any 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 2019