Who doesn’t love the idea of getting rich quickly with UK shares? We only have a limited amount of time on this earth, so building big wealth as soon as possible is an appealing idea.
But the road to creating market-smashing returns isn’t an easy one. Indeed, many investors take on too much risk as they race for the finish line and end up worse off than before they’d started.
The reality is that majority of successful investors adopt the slow-burn approach.
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It’s unlikely that anyone reading this will make the enormous wealth of billionaire stocks guru Warren Buffett. However, his strategy shows the huge earnings potential of long-term investing. He’s been buying stocks since the early 1940s!
The 3 keys to creating wealth
The real secret of investment isn’t anything clever or flash: it’s simply to aim to get rich slow.
Sarah Coles
Successfully investing over an extended period doesn’t have to be complicated either. That’s according to Sarah Coles, head of personal finance at Hargreaves Lansdown.
She says a strategy of gradually building wealth over time is built in three simple rules:
Don’t take too much risk
It’s essential that investors don’t take too much risk with their cash, Coles explains. Shes notes the huge popularity of “massively risky enterprises like day trading, spread betting and crypto” and adds that “investors who take massive risks stand every chance of getting much poorer very quickly”.
The key is not to be too over-cautious either. Instead, individuals should seek to build “a balanced and diverse collection of investments”, the analyst says.
Think long term
Coles says that investors “need to be in it for the long-term”, a discipline that can create wealth thanks to the miracle of compounding.
In a nutshell, compounding is the process whereby an individual makes money from their initial investment as well as on any interest payments. In the world of share investing, this involves reinvesting any dividends received to buy more stock. And it can have a spectacular effect on an investor’s wealth.
Let’s say I invest £100 a month and enjoy a regular return of 10% a year. With dividends invested I would, after 30 years, have made a juicy £197,393. That’s more than FIVE TIMES the £36,000 I’d have invested in total over the period.
Invest regularly
As the example shows, consistent investment is also important to building wealth over time. And Coles explains that setting up a regular payment is one of the best ways to achieve this.
She says that “you can start with as little as £25 a month, which enables you to build a sizeable investment without ever needing to have a lump sum to hand”.
Coles adds that establishing a payment schedule allows investors to make money investing “without ever needing to remember to make a payment”.
There’s no guarantee that an investor will make money with UK shares of course. Markets can go up as well as down. But adopting a long-term approach can help reduce risk and create life-changing wealth.
