How would you invest a million pounds
So now I would invest £ 20,000 to try and make a million
Warren Buffett has often said that for most investors, he thinks an index tracker fund is the best investment. He points out that very few investors beat the market, even professionals.
For the past century, the long-term average return on the UK stock market has been around 8% a year, including dividends. Past performance is not a reliable indicator of the future. But I estimate that if the average returns stayed the same in the future, it would take 50 years for my investment to grow from £ 20,000 to a million.
Had I put my investment in an index tracker by the age of 20, I would hit £ 1 million by the age of 70.
This is a great example of why it makes sense to start a stock savings plan for kids when they are as young as possible. But that doesn't do me much good now. My 20s are just a distant memory.
Getting things going
As long as I am still working, I would like to make regular monthly payments into my pension fund. If I add these to my initial £ 20,000 my return should improve significantly.
My calculations have shown that by investing an additional £ 250 per month in a FTSE 100 tracker fund, I could make a million after 37 years. If I increase my monthly deposit to £ 400 I could reach £ 1 million in just 33 years.
By combining regular monthly payments and an initial lump sum, I should be able to accelerate my progress. But 33 years is still a long time. Is there anything else I could do to improve my ROI?
Could I make a million with growth stocks?
Investing in small, speculative growth stocks can yield much larger profits. But it's a special area with a lot of risk. It is easy to lose a lot of money as many growth companies are unsuccessful.
After all, there are 1,117 companies valued under £ 500million on the UK Stock Exchange, but only 174 companies valued above £ 2 billion. Most small businesses stay small.
When I'm looking for growth, I prefer to focus on the FTSE 250. These medium-sized companies are usually already profitable and successful. They are big enough to survive tough times, but still small enough to grow vigorously.
The FTSE 250 has increased by 76% over the past 10 years, while the FTSE 100 has only increased by 13%. I cannot be sure that this outperformance will continue. But to improve my chances of capitalizing on the success of smaller growth stocks, I would invest half of my money in a FTSE 250 tracker and half in the FTSE 100.
To increase my exposure to proven winners, I could also use some of my funds to build a portfolio of handpicked quality stocks. I would look for companies with above average profit margins and a track record that beats the market.
I hope that with this approach I can get the rate of return I need to meet my £ 1 million goal when I turn 60.
The post How I'd Invest £ 20,000 Now Trying to Make a Million appeared first on The Motley Fool Germany.
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Roland Head has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion.
The Motley Fool UK has no position in any of the stocks mentioned.
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