CashNews.co
Buying and holding UK shares for the long run can help investors build some substantial wealth. Even when only putting £100 into the stock market each month, it’s possible to grow a pretty impressive nest egg to retire on.
In fact, if investors start early enough, this could transform into a £600,000+ portfolio generating over £25,000 passive income!
On average, the UK stock market’s delivered annualised returns of around 8%-10% a year. The FTSE 100‘s (^FTSE) historically offered the lower end of this range, with the FTSE 250 (^FTMC) tending higher. Yet, this higher performance has also come paired with significantly more volatility.
Nevertheless, when maximising returns is the priority, sticking with the UK’s flagship growth index makes more sense. So how long would it take to transform a £100 monthly investment into a £600,000 portfolio at a 10% annualised return? The answer – about 40 years.
Given that the average length of a career is around 45 years, putting aside £100 a month might be sufficient to open the door to a slightly earlier retirement. And by following the 4% withdrawal rule, investors could also continue to earn a £25,300 passive annual salary.
That’s terrific news for those who’ve just started working. But less so for those who’ve already been at it for a while and haven’t started putting money aside. Even more so considering that the process of building a £600,000 nest egg might end up taking even longer than expected. After all, just because the FTSE 250 has delivered near 10% returns in the past doesn’t mean it will continue to do so in the future.
So besides simply injecting more money into UK shares, how can investors still reach the £600,000 threshold on a shorter timeline?
While the London Stock Exchange has a reputation for conservative investing, there are still plenty of high-growth opportunities for investors to capitalise on. One such example from my portfolio is Alpha Group International (ALPH.L).
The currency risk management and alternative banking company has been on quite a rampage over the last five years. In fact, the fintech stock’s doubled. Zooming out to its IPO in 2017 reveals a massive 770% total return for shareholders.
That means over the last seven years investors have reaped a 33.9% annualised return. And if £100 was invested each month at this rate, the journey to reaching £600,000 would take around half the time.
Sadly, this level of gargantuan growth’s pretty rare and isn’t likely to be sustained over the next decade-and-a-half. After all, Alpha Group’s now a £890m market-cap company. And while I remain optimistic about its long-term potential despite the risks and challenges it faces, expecting a near-34% annualised return is just unrealistic.