Investing through a winter of discontent
The term “Winter of Discontent” was used in the opening line of Shakespeare’s...
Who wants to be a millionaire? It’s hard to believe but almost 25 years have passed since quizmaster Chris Tarrant first posed that question on the hit TV show.
Millions of people tuned in every week to watch the contestants attempt to correctly answer 15 questions with the help of three lifelines: Phone a friend; 50-50; and ask the audience.
But while everyone appearing on the programme dreamed of walking away with the top prize, only a relative handful succeeded.
The first person to navigate their way to the jackpot was Judith Keppel in 2000 – just two years after the show made its UK debut.
The most notorious, meanwhile, was Major Charles Ingram who cheated his way to victory the following year with the help of a coughing accomplice in the audience. The Major and his wife, Diana, were given 18-month prison sentences, suspended for two years, while accomplice Tecwen Whittock received a 12-month sentence, again suspended for two years.
Of course, answering questions on a television show – or cheating the system – isn’t the only way of securing a seven-figure sum that can make your financial future more comfortable.
It can also be achieved by investing – if you put away enough money, choose the right asset classes, and give yourself plenty of time.
Many people have joined the exclusive Millionaires’ Club over the years after buying into investment funds that have delivered bumper returns to clients.
There are even 2,000 millionaires through their Individual Savings Accounts, according to Freedom of Information (FOI) requests made to HMRC by InvestingReviews.co.uk.
The website discovered these investors’ lucrative ISA holdings were worth an average of £1,412,000, while 60 investors have pots with more than £3m.
It claimed investors starting today could expect to reach the coveted seven figure mark in 22 years by maxing out their £20,000 annual allowance and assuming a compounded 7% annual return.
Of course, investing certainly isn’t a guaranteed route to riches. The stock market can be an extremely volatile place and the value of your investments can go down as well as up.
The good news, however, is that there’s plenty you can do to improve your chances of success and limit the potential downside – if you do your research.
According to our calculations, it’s possible to become a millionaire in just 17 years. Using the current individual £20,000 ISA allowance as a starting base, and assuming the annual capital growth is 5% after charges, a couple could see their ISA pot reach £949,299 in 16 years and £1,033,614 in 17 years*.
With the same assumptions, an individual investing their full ISA allowance could see their investment reach £1,022,269 within 26 years*.
You can start with this guide covering how to start your journey towards Millionaire’s Row – and the pitfalls to avoid along the way.
This is the most important factor. Almost everyone wishes they had started saving earlier in life as this gives your money more time to grow.
The compound effect of interest – or dividends – on your savings can also help enlarge the pot. This can help speed up your journey to seven figures.
Having a longer investment horizon will also give you the freedom to take more risk with your money in the hope of generating higher returns.
It’s always hard to find money to save when we have so many things we need to spend our wages on.
However, you may be able to cut some costs – and put the money you’ve saved towards bolstering your investments and building for the future.
A great idea is to set up a direct debit straight from your current account into your savings accounts or investments each month, so the money is accumulating without you even realising.
Another idea is to immediately increase your savings by the same percentage as any pay rises. What you haven’t had previously, you won’t miss.
Your potential to hit seven figures will also depend on your attitude to risk – and your willingness to cope with stock market volatility.
Increasing your chances of enjoying bumper returns may require you to have exposure to more volatile assets, such as emerging market equities.
The problem with investments – particularly those linked to the stock market – is that the value of your holdings can fall as well as rise. You need to be prepared for such eventualities.
The key to successful investing is carrying out thorough research. There is certainly no shortage of investment funds, so you need to know everything before committing your money.
That’s where FundCalibre can help. Each of our Elite Rated funds has an individual note, explaining everything you need to know about it as an investment.
It’s important to understand not just how a fund has performed, but also why it has done well or badly, and whether that is likely to change.
That’s why it’s important to spend time researching the fund managers at the helm of these portfolios and getting an idea of their track records.
You also need to understand the risks taken by the fund manager, the way they select stocks, how they build portfolios, and whether they make regular changes.
The annual rate of return you achieve on your investments after charges will make an enormous difference to how quickly you achieve your goal.
There are several Elite Rated funds that have been in existence for two decades, which is close to the time that the TV programme first aired.
If you had been able to invest £20,000 a year for 20 years, 10 Elite-rated funds which have had the same manager for the past two decades, would have achieved the desired result**.
If you had invested a much smaller sum of money – £10,000 a year for 20 years – three of these funds would have turned you into a millionaire**.
|Elite Rated fund||£10,000 invested annually for 20 years**||£20,000 invested annually for 20 years**|
|Liontrust UK Smaller Companies||£1,140,107||£2,280,214|
|AXA Framlington American Growth||£1,082,046||£2,164,093|
|TB Amati UK Smaller Companies||£1,039,181||£2, 078,362|
|European Opportunities Trust||£858,998||£1, 717,995|
|JP Morgan Emerging Markets Investment Trust||£829,418||£1,658,835|
|Schroder Asian Income||£738,789||£1,477,578|
|Liontrust Sustainable Future Global Growth||£683,721||£1,367,442|
|Waverton European Capital Growth||£635,259||£1,270,518|
|Jupiter Merlin Growth Portfolio||£600,101||£1,200,202|
|City of London Investment Trust||£542,259||£1,084,518|
This article was originally published 6 September 2018 and updated on 8 June 2022.
**Source: FE fundinfo, total returns in sterling, over 20 years to 29th April 2022