The idea of starting with nothing and building a £100,000 nest egg sounds appealing. And, for me, the best ways to do this is to invest in shares.
One of the things I like about buying shares as a way to create wealth is I can invest as I go. I can start with nothing and build from there. This allows me to match my approach to my own financial situation. If I wanted to target £100,000, here is how I would go about it by putting aside £100 a week to spend on UK shares.
Regular saving
Okay, £100 a week is quite a bit of money, but I think it is a realistic goal for me to save. By putting aside money and watching it grow, I will build up some capital. This will allow me to buy shares in my bid to target £100,000.
There are two ways this can happen. One is that the shares go up in value compared to what I pay for them. So if I sell them in the future, I will receive more money than I initially spent. A second way shares could help me build wealth is by paying me dividends, which is how a company divvies up its surplus cash.
Neither of these is guaranteed to happen – I could lose money, in fact. So when trying to build my wealth, I also always look to manage my risk. For example, I diversify across different shares. I only invest in companies I feel I understand and whose shares seem to offer me good value.
As I saved, I would put my money into a share-dealing account, or Stocks and Shares ISA.
Focus on long-term wealth creation
I believe I can get to the £100,000 target – but it could take many years. Rushing things might lead me to make some costly mistakes. So instead I would focus on applying a consistent investment strategy and trying to manage my risks.
Although I could invest my money in shares I thought had a high chance of price growth, I would probably focus a lot of my portfolio on income shares. Doing this allows me to benefit from compounding – basically reinvesting the dividends to buy more shares. This, in turn, can provide more dividends in future.
Imagine I did this with shares yielding an average 7%, slightly lower than the current yield on Legal & General. This means I could reach my £100,000 target in under 13 years, all by putting aside £100 a week.
This example assumes a constant share price and dividend whereas, in practice, they could rise or fall. But it shows how compounding dividends could help me turbocharge the returns from my income shares.
Building a portfolio of UK shares
Legal & General is only one share – and I want to build a diversified portfolio. So while the insurer might earn a place in my plan, I would want to buy other shares alongside it.
I think I could do this sticking to blue-chip UK shares from the FTSE 100 index as a way to try and manage my risk. Getting to £100,000 does not require some fantastic stroke of luck or incredible investment skill. I think I could do it methodically by focussing on saving regularly, buying quality shares, and keeping an eye on my risk.
The post By investing £100 a week in UK shares like this, I’d aim for £100,000 appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.