In a world of get-rich-quick schemes, the concept of accumulating wealth over several years sounds boring to some. However, most of the schemes turn out to be incredibly high-risk, or sometimes even a scam. Investing in the stock market via the FTSE 100 has proved to be profitable for people in the past (myself included). So could I scale it up to reach millionaire status in just a single decade?
Getting my FTSE 100 strategy
Before I get to the hard numbers, I want to run through the strategy. Over the past decade, the FTSE 100 is up by 26.7%. However, this doesn’t include the dividend payments that were paid over this period. When I include this income, the total return from the index jumps to 85%.
Even though past performance doesn’t guarantee future returns, I feel that an 8.5% annual growth rate is reasonable to forecast for the next decade. In fact, I’m quietly confident I could push this closer to 10%.
This is because I wouldn’t aim to hold all of the FTSE 100 constituents. Rather, I’d focus on a dozen or so that have exciting growth prospects, or that are high dividend payers. From that angle, I’d hope to achieve above average dividend income as well as share price appreciation.
My main risk here is that instead of beating the benchmark, I badly underperform due to bad stock picks. I’ll try and reduce this issue by still buying at least a dozen shares. Even if something goes wrong with one idea, I can hopefully reduce the drag on my portfolio return from this company.
The numbers to reach my goal
As with most things in life, the main catch hinges on how much money I have. I can have some incredible investment ideas and strategy for the FTSE 100, but if I can only afford to invest £100 a year, I can’t make enough profit to reach £1m.
If I feel I can achieve hit my target return, then in theory I can double my initial investment in a decade. If I simply want to invest a chunk of money at the beginning, it’s clear that I’ll need to invest £500k to reach millionaire status. I don’t think it would surprise many to know that I don’t have this amount of money ready to deploy!
Another option is that I invest in regular amounts within the decade. This does make it more achievable, and would mean I’d invest £5,000 a month over the course of the next decade. Even though this means I don’t have to invest such a large amount upfront, it’s still too much for me to afford.
The next best thing
To answer my question, yes I could become a millionaire via the FTSE 100. But I’m going to struggle to do it within a decade. Yet this doesn’t mean I’m tearing up my investment approach. If I can average a 10% return for years to come, this is fantastic.
What it means is that I’m unlikely going to be a millionaire in a decade, but I’ll be considerably wealthier than I am now!
The post Could investing in the FTSE 100 make me a millionaire within a decade? appeared first on The Motley Fool UK.
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Jon Smith and The Motley Fool UK have 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.