It’s possible to make a million pounds by investing in UK shares, if you’re willing to be patient. The key is to start buying shares as early as you can, and reinvest all your dividends for long-term growth. That’s what I do.
Never underestimate the power of dividends. They’re the tiny acorns that can grow into mighty oaks. I have just received the modest sum of £68.99, and that’s put me another small step closer to making that million.
That money was the latest dividend payment I received from a tracker fund I hold, HSBC FTSE All-Share Index. I didn’t have to do anything to generate it either. HSBC just sent it to me. It’s something the fund does. Regularly.
I’m earning income from UK shares I’m not daft. I don’t expect £68.99 to turn into £1m all on its own. I would have to live for 142 years for that to happen, assuming the stock market grows at an average rate of 7% a year. I’m not planning on living that long.
However, that £68.99 isn’t a one-off payment. HSBC FTSE All-Share Index pays me a similar sum every month. Again, for doing nothing. Jolly nice of it.
I don’t spend that money, but reinvest it straight back into the fund. Doing so means I invest around £840 a year, with zero effort on my part.
This isn’t the only dividend I generate. I aim to hold a balanced spread of UK shares and globally diversified investment funds, and let all those dividends roll up too. Occasionally I might check what they’re paying, but not very often. They’ll roll up regardless.
Every time I reinvest a dividend, I pick up more stock. That stock also generates dividends, which buys more stock, in an endless virtuous circle.
Once again, I don’t do anything. I just rely on the magic formula of compound growth and interest. It’ll turn all these small payouts into something much more satisfying.
Roll up, roll up All too often we think of dividends in terms of yields. So we might say this UK share deals 4% a year, or that one yields 7%. Try thinking of them in cash terms as well. If you invest, say, £5,000 in GlaxoSmithKline, its current 5% yield gives you £250 this year. You’ll get something similar next year as well. And the year after that.
The more UK shares you buy, the more dividends you’ll generate. Sadly, many FTSE 100 companies have suspended shareholder payouts during the pandemic, but plenty yield as much as 7%, including these two.
You should cherish each £68.99 you receive, or whatever the sum. It may not be worth a fortune today but, over time, all those little payments could turn into a million. That’s my plan anyway.
The post Here’s how I plan to turn £68.99 into a million by investing in UK shares appeared first on The Motley Fool UK.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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 2020