Can I become a millionaire by investing in UK shares? Yes, I believe so. But there are caveats. I’d need a well-considered plan, and sufficient time to reach my goal.
Time is one of the most significant parts of the equation when looking at stock market returns. The longer I can keep investing, the larger my investment pot can grow.
And by adding new cash every month, I can buy more shares. New stocks provide new dividends. In turn, these dividends buy new shares. And so on.
Over time, this compounding effect can multiply my shares like a snowball rolling down a mountain.
Drip-feed into UK shares
On average, the long-term annual return for UK shares is around 8%. In reality, stock markets will experience gains and losses far greater than 8%. For instance, it’s not uncommon for the FTSE 100 to achieve a 20% annual gain. That said, there have been instances where it has dropped by at least as much too.
Thankfully, significant declines are rare. But to try to forecast what could be possible in the coming decades, I think it’s reasonable to use long-term history as a guide.
So how can I reach £1m? I’d drip-feed £500 a month into the best UK shares. And I’d do it for as long as I can. I calculate I should be able to reach my goal if I can consistently invest for 35 years.
It might sound like a long time, but that is the benefit of starting as early as possible. If I didn’t have 35 years to remain invested, I reckon I could still reach my goal. But I’d either have to raise my monthly investment or try to achieve a greater return.
Which UK shares?
To achieve the 8% average return, I could invest in a FTSE 100 index tracker. As the name suggests, this type of fund is designed to replicate the performance of the FTSE 100 index.
Alternatively, I could try to beat the market by picking my own shares. There are thousands of UK shares available to buy, each with differing characteristics.
I’d look for shares that could stand the test of time. I’d want them to survive and thrive over many decades. Some characteristics that I find appealing include strong consumer brands. For instance, beverage giant Diageo owns some drinks labels that have been around for hundreds of years.
I’d also want to own shares that tap into key trends, such as the growing demand for healthcare. Astrazeneca is a global pharmaceutical giant that is well-placed to capitalise on cutting-edge healthcare advances.
Both of these shares have achieved above-average share price returns over the past decade and I’m confident they will continue to succeed over the coming years.
Bear in mind that picking individual shares can involve more risk and swings in price though. Many factors affect share prices and I’d need to keep a close eye on each one.
There are also times when many share prices can tumble at the same time. But I’d need to learn to ignore short-term noise and focus on my goal and timeframe. That should hopefully take me on the path to a million.
The post How I’d drip-feed £500 a month into UK shares to aim for a million appeared first on The Motley Fool UK.
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Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.