BECOMING a millionaire will seem like a distant dream for many, but by saving from a young age it could become a reality by the time you retire.
In fact, someone who starts investing £78 a month at the age of 22 would have more than £1million by the time they turn 65.
The later you start investing, the more you’ll have to put in to become a millionaire
This is based on an assumed return of 10 per cent per year after fees are considered, and that you increase your contributions in line with the long-term inflation target of two per cent, according to an analysis by investment platform AJ Bell.
Meanwhile, a 30-year-old would need to save £174 a month to achieve millionaire status at the age of 65 while someone starting at the age of 37 would have to put aside £377 each month.
The best way to make it happen is by using the Lifetime Isa (Lisa), as it offers a Government bonus of up to 25 per cent each year for those under 40, AJ Bell said.
It comes with a yearly £4,000 allowance so once that has been maxed out, investors should use a so-called stocks and shares Isa.
The maximum amount you can put away in an Isa for the current tax year is £20,000.
Alamy Investing is riskier than saving cash, but the returns are usually much better
The returns of a stock and shares Isa depend on the performance of the stock market, so be aware that you could actually lose money if share prices fall.
Also keep in mind that you’ll need to keep any returns in the account – an effect that’s known as compound interest because you’re effectively earning interest on your interest.
Investing is riskier than cash savings, but a cash saver would need to save until the age of 100 to become a millionaire, assuming a rate of 1.5 per cent a year, AJ Bell said.
The interest rate is one of best paying easy access savings accounts at the moment. See our top savings accounts guide for the best buys.
Laura Suter, personal finance analyst at AJ Bell, said that by saving from a young age, investors would benefit from compound growth over many years.
“As the example shows, the later you leave it the amount you need to start saving quickly ratchets up.”
How to start investingBEFORE investing you need to be aware of the risks, as unlike cash, what you save can go both up and down.This means you can be left with less than what you started with.
And you’re not protected by the Financial Services Compensation Scheme (FSCS) which covers cash up to £85,000 per financial institution.
There are of course ways to reduce the risk of investing – for example you could opt to invest in cheaper so-called “passive funds” that track the fortunes of various stock markets, such as the FTSE100 or FTSE All Share indices.
Investing in actively managed funds – that pool different types of investment together – is also less risky than just investing in individual companies, known as shares. This is because you’re spreading your risk across a range of companies or other types of investment, such as bonds or property.
Robo-investing – where a computer determines what you should invest in based on a questionnaire of your preferences – also comes with lower risk as it’s spreading your investments.
If you feel confident, you can start investing by setting up an account on an investment platform – a sort of supermarket of different investment products. And you can do all of this within a Stocks and Shares Isa wrapper. Do check the fees first.
If you’re unsure, you should always seek professional advice – you can use comparison services Unbiased or VouchedFor to find a suitable financial adviser.
“The beauty with Isas is that once money is in the account there is no income or capital gains tax to pay so they are a simple way to save for the long term,” she added.
“The money can be accessed at any time should you need it but if you can leave it untouched and be patient it is possible to turn yourself into an Isa millionaire.
“Investing in the stock market does involve risks but over the long term shares have delivered very strong investment returns compared to other types of investment.
“One of the most valuable things millennials have on their side is time. This enables them to take a very long-term view and know that they can sit tight when things get a bit bumpy and ride out any short-term market volatility.”
BANKING BLOW Tesco Bank cuts current account rate from 3% to 1% – top banks revealed SLICE OF THE ACTION Pizza Hut fans could win a year’s supply of pizza NEED FOR SPEED You can soon cancel broadband contracts if speeds are less than promised NEIGH WAY Smyths is selling ‘original’ My Little Pony toys for £9 each BANK FAIL TSB and Barclays down leaving customers locked out of accounts AGAIN ExclusiveSHOP TIL YOU DROP We make £600 a year by referring our friends to retailers we shop at
Last week, The Sun revealed how you can give your child £18,000 on their 18th birthday by saving just £1.67 a day.
By investing in whisky you could also earn £10,000 a month – but you won’t be able to touch a drop.
Earlier this month, a disabled man told us how he spent 13 years paying back £50,000 he lost after falling for a “fake” shares investment scam.
Martin Lewis reveals how you could earn 100x more on your savings
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at firstname.lastname@example.org