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How I’d try to make a million from investing £5 a day in UK stocks

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There’s no time like the present, especially when it comes to buying UK stocks. While some investors like to delay their share purchases in the hope of nailing the ideal moment to buy, I don’t think that’s a good idea for me.

That’s because there’s no ‘perfect’ time to buy and even if there was, it would be impossible to spot, except with the power of hindsight.

I’d buy UK stocks today

Another reason I’d invest today rather than tomorrow or the day after is that the longer my money is in the market, the more time it has to grow. Just take a look at these figures for confirmation.

Let’s say I had the foresight to start investing £5 a day in UK stocks when I was 25 years old. That’s the equivalent of £1,825 a year, by the way.

If I carried on doing that for 42 years, I’d have £483,846 by the time I reached my expected retirement age of 68. 

If I was even more sensible and increased my contributions by 5% every year, I would have £995,384 to retire on. That’s just shy of a million.

These figures assume I enjoy an average total return of 7% a year, which is roughly the long-term return of the FTSE 100. So it’s doable, but with one big proviso. To make £1m from investing £5 a day in UK stocks, it’s important to start early.

An investor with a shorter timescale could still do it, but they’d have to generate a higher average return than 7% a year, which would involve taking on higher risks. That of course increases the danger that something will go wrong. Otherwise they could pay in more.

If I was 45 years old and wanted to make £1m from UK stocks starting from scratch, investing £5 a day wouldn’t do it. Incredibly, I would have to invest the equivalent of £30 a day, or £10,950 a year, which is six times as much.

If I increased that sum by 5% a year I could possibly build a retirement pot of £977,746 over the 23 years at my disposal.

I’m targeting cheap FTSE 100 stocks

These figures show the importance of starting investing as early as possible, at least when chasing big targets like a fat juicy million. Investing £5 a day at any age is still worthwhile though. Even over a short 10-year timescale, it could build into £198,159, making the same return assumptions.

That could make the difference between a difficult retirement and a relatively comfortable one. Also, now looks like a good time to invest in UK stocks, which have swung into favour after years when investors preferred to throw their money at US tech and crypto.

The FTSE 100 is crammed full of top dividend stocks offering high yields, in some cases as much as 7%, 8% or more. While dividends aren’t guaranteed, that kind of income could help turbocharge my plans to make a million. Any share price growth would come on top of that.

As always with investing, there are no guarantees, but doing something is much, much better than doing nothing.

The post How I’d try to make a million from investing £5 a day in UK stocks appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.