Some easier ways to be a millionaire

Do you want to have £1m in the bank? Well, you can. And the good news is, you don't have to do mental battle with Chris Tarrant to get it: just save little in all the right places.

Chris Tarrant has caught the national imagination with Who Wants to Be a Millionaire? on ITV. But can you make a million without subjecting yourself to the terrors of the television studio? We asked investment expert Simon Martin, a research actuary with AON Consulting, to work out how you could be a millionaire by 60, with saving and investing. That's a liquid million, ignoring the value of your house, pension and so on.

Chris Tarrant has caught the national imagination with Who Wants to Be a Millionaire? on ITV. But can you make a million without subjecting yourself to the terrors of the television studio? We asked investment expert Simon Martin, a research actuary with AON Consulting, to work out how you could be a millionaire by 60, with saving and investing. That's a liquid million, ignoring the value of your house, pension and so on.

Mr Martin put together some sample figures. He says: "Two hundred and fifty pounds a month in your twenties looks just about do-able if you started in a good job. But it gets quite expensive if you only start investing at 50."

The secret to making your million without undue risk, says Mr Martin, is something called compound interest. With a portfolio of shares, compound interest means that if you keep re-investing all the dividends from your shares into buying new shares, your investment "pot" will grow at a rapidly increasing rate. The longer you do this, the quicker the pot grows. This is why holding shares over a long period, say 20 to 30 years, can beat any other investment.

Which brings us back to how you make your million. Mr Martin says there is no doubt investing in shares is the best method in the long term. "I would invest in them and then forget about them," he says.

He cheerfully admits this runs totally contrary to the latest craze, imported from the US of course, for "day trading" - private individuals playing the stock markets via the Internet from the comfort of their own homes. These investors tend to buy and sell shares every day, a far cry from leaving a portfolio of shares alone for half a lifetime.

Mr Martin's preferred method for building a portfolio, rather than the time-consuming and expensive path of picking stocks yourself, would be investing in an index tracking fund. This kind of fund is a recent innovation but is catching on fast. Instead of picking particular stocks to go into a portfolio, institutions invest in a range of shares in order to reflect exactly the performance of, say, the FTSE 100 index of top stocks.

Tracker funds are entirely automatic, running on computers, and as such do not require City fund managers to keep reviewing or changing the stocks, unlike "actively managed" funds - which often charge steep commissions for managing the portfolio. Mr Martin says that, apart from frequently lower charges, tracker funds also have the advantage of simplicity. You can see exactly how the fund is performing each day, simply by looking at the FTSE 100 index.

"A lot of pension funds already use tracker funds, and the Government's new, low-cost stakeholder pensions [to be introduced in 2001] will also use them," says Mr Martin. So if you're 25 and able to invest £300 a month, you could plonk it all into a stakeholder pension in a couple of years, and still be just below the planned maximum annual contribution of £3,600 a year - and when you retire at 60 you would end up with a million, tax free.

But we're back to boring old pensions, rather than having a liquid million stashed in the bank. And, as Mr Martin adds: "How many sad 25-year-olds are there who want to put £300 a month into a pension, even if they had it? Shouldn't they be off getting drunk and driving fast cars?" Not the sentiments you might expect from an actuary, of all people.

Apart from shares, are there any other ways Mr Martin favours for making a million? How about the National Lottery? "I don't like the National Lottery, but I do like National Savings Premium Bonds," he says. Premium Bonds (minimum purchase £100) award a range of prizes each month, from £50 to a cool million.

This averages out as paying you an annual return of around three to four per cent a year - and you always get your capital back. And there's always the chance that Ernie, the National Savings random number generator, will pick you for the "Big One" - the monthly million-pound payout.

Mr Martin says of his own premium bonds, somewhat wistfully: "I've held them for a couple of years - I'm still hoping."

So much for the actuary's view on how to make your million. What about a fund manager, someone who is paid to make millions for people and institutions?

Chris Tracey, investment director at Fleming Asset Management, echoes Mr Martin's views - the only way to ensure you make your million by age 60 is by investing in shares. And the earlier you start the better. Mr Tracey admits that over the short term, say two to five years, you may hit a stock-market crash - like "Black Monday" on 19 October 1987.

But famously, just a year after the crash, the stock market had recovered all its losses, and then some. The longer you hold on to your shares, the surer it is that you will end up making profits, says Mr Tracey. "In the last 50 years, there has been no single 20-year period when you would have made a loss investing in shares."

Putting shares to one side for a moment, how about bonds? That is, IOUs issued by the Government (called "gilts") or by companies. Not on, says Mr Tracey, because bonds don't grow fast enough in value. "You would never make your target of a million by age 60," he says.

As always, much depends on at what age you start the whole process. For instance, says Mr Tracey, if you are young enough to be able to hold your investment for 25 years or more, there is an argument for putting the whole lot into equities. Shares will give you by far the highest return over the long term, and the longer you hold them the less you have to worry about short term falls in their value.

The older you get, he adds, the more you should look at building a mixed portfolio, combining, say, equities with slower-growing but lower-risk investments, such as bonds. The nearer you get to retirement, the more you should try to cut down on risk, by increasing the proportion you keep in cash in the bank.

The term "equities" is wide, spanning all types and sizes of companies all over the world. Emerging markets, such as Asia and Latin America, are much riskier than developed markets such as the US and Europe. So only a portion of your pot should be invested with them.

The same point goes for which sector you choose. Some sectors, such as hi-tech companies, may offer exciting growth prospects coupled with high risk. The moral is to diversify your portfolio across countries and sectors. Unless you are already a keen investor, your selection might best be left to a professional, via a collective fund, such as a unit trust or an equity ISA.

Are there any other ways of making a million through investment? How about that favourite after-dinner topic, bricks and mortar? Its impossible to open the papers these days without reading about the current boom in house prices.

Forget it, says Mr Tracey. "Residential property has been a good hedge against inflation over the last 30 years - but you would probably still have done better with equities. We believe the high inflation of the 1970s and early 1980s was an anomaly."

With factors such as Internet commerce and globalisation driving down inflation, you should be looking at investments which will grow in value despite low inflation, he says.

What about gold? Again, a great hedge against inflation, but not so useful while price rises are low. You get no income so, overall, you get "a pretty awful return" Mr Tracey says.

How about great works of art? Railplan, the old British Rail pension fund, had a go at investing in paintings in the 1970s, and didn't do too badly. But you will be hit by the costs of insurance, storage, and no income.

The sting in the tale is, a million won't be worth what it is today when you do hit 60, even in an era of low inflation. Say you are aged 25 today and on a salary of £25,000 pa. If you invest £300 per month at nine per cent you will get your million at age 60. What kind of pension annuity would that buy you in today's terms?

The answer is, it would get you an income worth just £10,000 a year in today's money. Not exactly a jackpot to look forward to. Perhaps you should raise your game, play safe and make the target £10 million...

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Jeremy Paxman has admitted he is a 'one-nation Tory' and complained that Newsnight is made by idealistic '13-year-olds' who foolishly think they can 'change the world'.
peopleThe idea has been greeted enthusiastically by the party's MPs
News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
Avatar grossed $2.8bn at the box office after its release in 2009
filmJames Cameron is excited
Voices
File: David Cameron offers a toast during a State Dinner in his honour March 14, 2012
voicesAnd nobody from Ukip said babies born to migrants should be classed as migrants, says Nigel Farage
PROMOTED VIDEO
Arts and Entertainment
Stik on the crane as he completed the mural
art
News
Happy in his hat: Pharrell Williams
people
Arts and Entertainment
Stella Gibson is getting closer to catching her killer
tvReview: It's gripping edge-of-the-seat drama, so a curveball can be forgiven at such a late stage
News
Brazilian football legend Pele pictured in 2011
peopleFans had feared the worst when it was announced the Brazil legand was in a 'special care' unit
News
i100(More than you think)
Sport
Brendan Rodgers seems more stressed than ever before as Liverpool manager
FOOTBALLI like Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
News
The Magna Carta
archaeologyContemporary account of historic signing discovered
News
Phyllis Dorothy James on stage during a reading of her book 'Death Comes to Pemberley' last year
peopleJohn Walsh pays tribute to PD James, who died today
Sport
Benjamin Stambouli celebrates his goal for Tottenham last night
FOOTBALL
Life and Style
Dishing it out: the head chef in ‘Ratatouille’
food + drinkShould UK restaurants follow suit?
News
peopleExclusive: Maryum and Hana Ali share their stories of the family man behind the boxing gloves
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Argyll Scott International: Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Argyll Scott International: 2x Service Desk Analyst

    £20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

    Recruitment Genius: Senior Execution Trader

    £30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...

    Citifocus Ltd: ACA - Financial Reporting

    £Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game