Wake up Millennials! Here’s how you can become an ISA millionaire
Make no mistake, when it comes to money, Millennials have it tough. Forget all that nonsense about generation snowflake, they face challenges the older generations simply didn’t have. And I say that as a 53-year-old member of Generation X.
Student debt, stagnating wages and spiralling house prices are conspiring against them. This figure from mortgage broker Trussle brought it home to me. In 1999, the average house cost £80,443, which was 4.5 times the average annual salary of £17,803. Today, the average house costs £234,853, which is 7.9 times today’s average annual salary of £29,558.
With rents hitting a record high of £970 a month in August, according to HomeLet, the squeeze on their wallets is relentless. Given these immediate financial challenges, many have hardly given a thought to investing for the long term. Especially since at this age, retirement must seem like an eternity away.
Time is on your side
However, you still need to plan for it, and these three simple steps may help. Millennials have one great advantage over everybody else, including me. They are young.
Time is on their side. If they invest money into a Stocks and Shares ISA now, it has 35-or-40 years to grow before they reach retirement, and a lot can happen in that time.
The first £1 you invest is the most important, because it has the longest to benefit from the magic that’s compound interest. If you invest in stocks and shares you don’t just get richer when the market rises, you also benefit from the regular dividends that most established companies pay.
If you reinvest these back into your portfolio, you’ll get growth-upon-growth-upon-growth. The younger you are, the longer your money has to grow, and the more it will ultimately become.
It all rolls up
Say you can afford to invest £250 a month at age 25. Yes I know that’s beyond most people, but bear with me. If you maintain that for life, by age 65 you would have an incredible £640,829, assuming average growth of 7% a year.
If you don’t start saving until age 35, your £250 a month would produce just £303,219. That may seem odd, because your money has dropped by more than half even though your investment term has only dropped by a quarter. As I said, those early contributions work hardest.
If you don’t start until 45, your £250 a month would only grow to £131,596. At 55, you would get just £44,351. All these figures assume the same 7% growth.
So Millennials have a massive advantage. Whatever they set aside for the long-term now – and it doesn’t have to be as much as £250 – has decades to roll up in value.
Make that million
Now to become an ISA millionaire you’d have to invest £500 a month, which is a pretty hefty sum for anyone. However, if you did that, you’d end up with £1,281,657. This advice from Warren Buffett could also help you become an ISA millionaire.
Even if that’s beyond you, smaller monthly contributions will still grow into a substantial nest egg over the long run. And that’s where Millennials have the edge – over the long run.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019