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The Way To Be A Millionaire

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Capital at risk. All investments carry a varying degree of risk and it’s important you understand the nature of the risks involved. The value of your investments can go down as well as up and you may get back less than you put in. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK. Accurate at the point of publication.

There are around 2.5 million millionaires in the UK, according to a report on household wealth by the investment bank Credit Suisse.

This measure of wealth includes property as well as other assets, such as savings accounts, pensions and stock market investments.

Many millionaires inherited their wealth or made money swiftly via to a business venture, property development or through celebrity. But it is possible to become a millionaire – or at least to build significant wealth – even on a relatively modest income.

Financial freedom

For most people, becoming a millionaire on paper is less important than achieving financial freedom. 

This can be described as having enough money to enjoy the sort of lifestyle you want without being weighed down by debts, such as a mortgage. This could require a lot less than having £1 million in the bank. 

Key ways to start working towards your goal of financial freedom is through regular investments and saving in a pension. Discipline and time are your allies here.

Those who manage to amass a significant sum over time are often consistent savers who benefit from ‘compounding’ (see section below) on their returns and who maximise tax allowances through individual savings accounts and pensions, for example.

Investing in equities (stocks and shares), or in equity-based funds through an ISA or pension has the potential to lead to higher returns over the long-term compared to cash deposit saving. 

But while stock markets have outperformed the growth on cash savings, it’s important to remember that past performance is not an indicator of future growth.

Risk and reward

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If you’re working towards the goal of millionaire status, you’re likely to need to take a bit more risk with your money to achieve higher returns. 

This will mean investing in equities rather than putting your money in a savings account, for example (although financial advisors tend to recommend keeping some ‘ready-access funds’ in a cash account for emergencies).

But when it comes to investment seeking higher returns will mean taking more risk. You need to be comfortable striking the right balance for you, remembering that you’re investing for the long haul. This should mean that you can ride out any short term dips in the stock market without too much panic.

Remember also that buying equities when stock markets and prices are lower presents a good opportunity. You’ll get more stock for your money and that increases the chances for greater growth when markets rise.

Individual savings accounts

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All UK investors and savers can put up to £20,000 into ISAs each tax year (tax year runs from 6 April) and the money can grow free from income or capital gains tax.

Sarah Coles at investment manager Hargreaves Lansdown, which has more than 620 customers with more than £1 million in equity ISAs, says there are some shared characteristics among the ISA millionaires on their books.

She points out that of the investment ISA holders that have become ISA millionaires, 30% had used their ISA allowance within the first month of the new tax year last year and 54% used their allowance within the first three months.

Ms Coles says: “Of course, not everyone can lay their hands on £20,000 to invest every year, but the principle still works – investing what you can afford as soon as you can afford to. Most importantly, the ISA millionaires don’t take enormous risks. Instead, they’ve built diverse and balanced portfolios over time.”

She says the majority invest in collective investments such as unit and investment trusts rather than individual stocks: “These millionaires are also geographically diversified with their eggs in lots of different baskets.”

Among the most popular funds chosen by ISA millionaires are global funds and sustainable investment funds.

Top 10 most popular investment funds chosen by ISA millionaires

  • Lindsell Train Global Equity
  • Fundsmith Equity
  • Artemis Income
  • Fidelity Special Situations
  • BNY Mellon Global Income
  • Fidelity Global Special Situations
  • Stewart Investors Asia Pacific Leaders Sustainability
  • Lindsell Train UK Equity
  • Rathbone Global Opportunities
  • IFSL Marlborough Multi Cap Income

Source: Hargreaves Lansdown (March 2023)


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Saving in a pension, particularly if you get employer contributions, is a great way to work towards your £1 million goal for retirement. 

With pensions attracting tax relief at your highest rate, it also means every £1 you pay into a pension fund gets automatically boosted by the taxman.

The longer time frame for investment in a pension means your money has time to grow, and compounding your returns along the way can have an even greater impact.

By way of example, a 35-year old worker in a company scheme making pension contributions (employee and employer) of £350 a month over 33 years would have a total pension pot worth more than £329,000 at retirement (age 68). 

This calculation makes a number of assumptions, including average investment performance of 7%, and is only for illustrative purposes.

It would take total monthly contributions of £1,100 for the same person to reach £1 million over that time period – an unrealistic level of monthly saving for many workers. 

But remember, a basic rate taxpayer would only have to make £800 of contributions to get £1,000 of pension savings due to tax relief, and that falls to £600 for a higher rate taxpayer.

How compounding grows your investments

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Compounding can be used to boost savings or investments by ploughing interest or returns back into the savings pot. 

For investments, compounding is when the return or growth on your equity fund is added to the original amount invested (known as the principal) and the returns from previous years. 

When you get paid a dividend or receive growth on the principal amount in a particular month or year, this is rolled up into the total pot and investment growth can be gained on the whole amount. Over time this can help your investment grow more quickly.

To give an example of how compounding can help you reach your £1 million investment milestone, if you invested a lump sum of £5,000 in an equity ISA and then regularly invested around £1,200 a month (keeping annual contributions below the ISA limit of £20,000), if the fund achieved annual growth of 7% (after inflation), you would have just over £1 million in the pot after 25 years thanks to monthly compounding.

In reality, most people can’t afford to save £1,200 a month, plus investment returns of 7% per year are optimistic and fairly unlikely. This is because inflation and investment fund fees need to also be taken into account (more on fees below).

But even with more modest savings of around £150 a month, compounding would grow this same fund to around £107,000 in 25 years – and this is with a lower assumed annual growth rate of 5%. 

The table below shows the impact of monthly compounding over time with assumed monthly contributions of £500 and average annual investment growth of 4%.

Impact of compounding (£500 p/m investment @ 4% growth)

The impact of investment fees and charges

The above results from compounding do not consider the impact of investment fees. 

If you invest on your own using low-cost index funds, the small fees charged by these types of investments won’t change the results significantly. But for investors that pay an advisor or use relatively expensive actively-managed funds, the results can vary dramatically when you take investment fees into account.

For example, if we assume that an investor pays a 1% annual management fee on their investments, it has a dramatic impact on the amount of money that needs to be saved each month to reach our £1 million goal. 

For the investment scenario given above – with an investor saving £1,200 a month over 25 years with investment returns at 7% per year – if we also assume investment management fees of 1% per year it would take the same investor more than two years longer to reach their £1 million savings pot. This is with monthly compounding.


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Property ownership – either your own home or investment properties, or both – is a popular choice for those looking to grow their wealth. Undoubtedly many homeowners and private landlords have become very wealthy off the back of property price gains – but it is not without its own risks.

Property prices have out-performed other asset classes in recent decades with the average UK home rising in value from £91,199 at the start of 2000 to £285,932 this month (July 2023) – growth of more than 200%, according to the Halifax house price index. Average house prices in the south east of England are now above £384,000 (and just over £533,000 in London).

Growth in property values has exceeded that of savings and stock market performance for many years. And the steep rise in property values, fuelled by a lack of supply of housing, has acted to make many homeowners (even those with a sizeable mortgage) feel more ‘wealthy’. 

But that said, as with any asset class, it is a risky strategy to put all your eggs into one basket – particularly if you’re relying on your own home to fund your retirement.

A property crash can see the gains in property equity disappear overnight. Rising mortgage rates are currently acting to dampen house prices, for example. 

If market conditions are not favourable at the time you want to sell and realise your gains, whether it’s selling a buy-to-let investment or downsizing in retirement to release funds, market volatility can be a big set back. 

In addition, there are the costs of property maintenance, mortgage costs and capital gains tax implications to consider on the sale of buy-to-let investments.

Avoiding lifestyle debt

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One of the main barriers to becoming a millionaire is ‘lifestyle’ debt. This is debt, often charged to a credit card, to purchase everything from holidays and items for the home to meals out.

A reasonable amount of debt that helps towards buying something of lasting value, such as education or training that could improve job prospects and salary, or for a home (as discussed above), can be a sensible choice. 

But going into high interest debt to buy things with no lasting value will work against the goal of becoming a millionaire. To grow wealth, aim to reduce consumer debts and overall spending.

The analysis featured here makes a number of assumptions about the variables that determine how and when you could become a millionaire. These variables will fluctuate over time, and some could prevent you from achieving this goal in the time you’ve allotted.

Perhaps the biggest assumption is the after-inflation average rate of investment return. Over the next several decades, the average rate of return may very well fall short of the benchmark we’ve chosen in this analysis. In addition, how much you can save each month will likely vary over time. 

And inflation (currently very high) may prove to be more of a headwind than expected.

Financial setbacks are inevitable. The best plans often fall short. While financial planning is important, be mindful that sometimes the markets, inflation or simply personal circumstances just won’t act in our favour.

The good news is that even if you fall short of the goal of becoming a millionaire, you can still use the tools discussed here to meet your financial goals. And even if your total wealth grows to be far less than £1 million by retirement, you’re still likely to be better off than if you’d never saved or invested.


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