I’d love to be rich.
The idea of having the freedom to choose how I spend my time, without the day-to-day financial pressures that most people have to deal with, really appeals to me. But could I become wealthy by investing in the FTSE 100?
Some of those in the Top 50 of The Sunday Times Rich List 2023 have made part of their fortunes from the UK’s largest listed companies.
But I don’t think I’m going to be included any time soon. To rank in the top 300, I’d need wealth of £484m. To be honest, that’s not going to happen.
Instead, I’d be satisfied with a million.
By most people’s standards, I think a millionaire would be considered to be rich. Although to my surprise, there are estimated to be 2.5m of them in the UK. But 35% of wealth in the country is currently vested in property, so the number of stock market millionaires will be much lower.
According to IG, the FTSE 100 increased by 26.3% between 2011 and 2022. If dividends are included — and reinvested — the return becomes 84.4%. This equates to an average annual growth rate of 6.3%, compared to 2.4% if income is excluded.
And this illustrates the power of compounding. As Benjamin Franklin, one of the Founding Fathers of the US, once said: “Money makes money. And the money that makes money makes more money“.
Assuming I live to be 81 (the average UK life expectancy), I have 31 years to achieve my goal.
Investing today a lump sum of £150,477 — assuming the FTSE 100 performs like it has done over the past 10 years — will give me just over £1m by 2054.
Unfortunately, I don’t have this amount available.
Alternatively, investing £10,498 annually for the next 31 years would achieve the same result.
But that’s a lot of cash too.
And, of course, there’s no guarantee that the stock market will perform as it has done in the past.
For example, over the past five years, the return has been a less impressive 3.2%. To achieve millionaire status with this level of growth, my initial lump sum would have to be an even more unaffordable £376,643. Otherwise, I’d need to find £18,736 each year.
I think the FTSE 100 could make me rich. But I’d need a lot of money — either in the form of a large initial stake or a very high annual disposable income — to get there.
But I’m still going to continue investing as much spare cash as I possibly can in FTSE 100 stocks. I intend targeting those paying generous dividends. This’ll give me more money to invest and help grow my portfolio more quickly.
By choosing carefully and investing only in quality companies, I should be able to grow my wealth by more than if I left the cash sitting in a bank.
And I’d be happy with that.
As Alfred Nobel said: “Contentment is the only real wealth“.
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James Beard has positions in Frasers Group Plc. The Motley Fool UK has recommended Associated British Foods Plc, Ocado Group Plc, and Schroders Plc. 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.2023-05-30T07:04:52Z dg43tfdfdgfd