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.
