Isn’t it easy to spend £10 a day without noticing it?
I knew a bloke once who popped into the pub for an hour on the way home from work, every night of his working life. He didn’t consume that much, just a couple of pints and a few snacks, and then he ambled on home to his wife and kids. His expenditure probably came to around £10 a day in today’s money.
And how about buying lunch at work instead of making your own sandwiches (even with Marmite now up 12.5% since the Brexit vote)? I’ve often been horrified by how much it costs to get an edible lunch in London when I’ve been there at Fool HQ — £10 really doesn’t go very far.
And what about those Frappalickamoccachocca… whatever they’re called hot beverage things that people seem to be slurping down by the gallon these days? You can pay £3 or more a time! For a cup of coffee!
For a lot of people, it would be easy to save £10 a day by cutting down on frivolities. But what I hear you ask, is the motivation?
What if I told you that a modest sum like £10 a day, set aside and invested in shares in top quality UK companies, could set you up to be a millionaire by the time you retire?
Obviously, that wouldn’t be any good if it meant a prospective retirement age of 97. So how long might it really take?
Suppose you could get an annual return of 6% per year from your investments? That might not sound a lot, but it would beat the pants off any savings account interest you could earn today — and it’s actually a relatively modest expectation compared to the long-term performance of the FTSE 100.
If you set aside £10 per day every day for a year and invest the accumulated sum in shares, a 6% total annual return would get you from nothing to a million in 49 years.
That might sound like an awfully long time, but I’m old enough to remember 49 years ago, and if my parents had been able to invest £10 a day for me back then I’d be a very happy Fool today.
But what if you can do better? How about 10% per year, with dividends reinvested? Over the same 49 year timescale, you’d end up with more than £4 million! And you’d have your first million in just 35 years.
Is that unreasonable? Well, you’d need a bit of good fortune, as that would beat the average FTSE returns over that period. But remember, the average includes all the losers too, the unrealistic high-risk hopes, and the “jam tomorrow” fad shares that many investors find it hard to resist piling into.
Which companies could do it for you?
What about GlaxoSmithKline, which is forecast to pay dividends of 5% per year for the next couple of years, on top of any share price growth that could come from its earnings growth outlook?
Or good old BP or Royal Dutch Shell, with dividends in excess of 6%. Sensible investors saw that oil is going to be in insatiable demand over the long term — and those who bought these two when they were down are surely set for good things.
In short, a small amount saved every day really can lead you to impressive riches over the long term.
