Forget Premium Bonds! I’d aim for a million by investing £50k in UK shares

Should I invest in UK shares or Premium Bonds? I think there is a clear winner.

Premium Bonds are the nation’s favorite savings product. Over 22m Britons saved £119bn, according to MoneySavingExpertPresenter Martin Lewis. The biggest attraction is the pair of £1m prizes awarded to two lucky people each month. However, I think I’d rather secure a seven-figure sum by investing in UK shares.

Here’s how I’d like to invest a million with £50k.

Premium Bonds

Premium Bonds are essentially the same as a savings account with a twist. I have some, but in the context of asset allocation, I treat it like cash.

Each bond costs £1 and individuals can invest up to a maximum of £50k. Instead of guaranteeing a return, the bonds are entered into a random monthly draw with an annual prize fund rate of 3.3%.

Most bonds won’t win anything, but with luck I managed to secure tax-free prizes from £25 to £1m.

But how can I win millions? The current odds of winning the top prize are 59 billion per bond.

The chances of winning some of the smaller prizes by investing £50k are pretty good, but the idea of ​​becoming a Premium Bond millionaire is a pipe dream. I am more likely to lose money in real terms due to the corrosive effects of inflation.

UK stocks

So how do UK stocks compare? Well, they are different propositions. The stock market is volatile, so I only invest for the long term. Stock price fluctuations mean that my portfolio can lose value in a short period of time.

However, in the long run, the FTSE 100 The index historically returns between 6% and 8% a year. Although no guarantee of future returns will match this, the argument for investing in riskier assets like stocks becomes more compelling the longer you invest.

I can visualize the return of a blue-chip benchmark by investing in a tracker fund, like Vanguard FTSE 100 UCITS ETF.

Index trackers have their place in portfolios, but the preferred strategy is to buy individual stocks. This has the potential to beat the Footsie average returns, but there is always the risk that my investment could be underperforming.

For example, the UK stocks I own include aerospace companies Rolls-Roycepharmaceutical giants AstraZenecaand build a house Taylor Wimpey.

On a 12-month basis, the stock returned +58%, +14%, and -18%. These numbers highlight the risks and opportunities that come with investing in the stock market.

How I want to million

I only buy stocks when I like to lock in money for the long term. For an emergency fund, I stick with cash or premium bonds because of the volatility risk associated with stocks.

Imagine that I get a 9% index compound annual growth rate on my investment. It is not guaranteed and I may fall well short of this goal, but it is a good ambition to model my calculations against.

With £50k to invest, I’ll have a £1m portfolio in 35 years! If I’d bought Premium Bonds instead, I’d probably still be waiting patiently for a million dollar prize 35 years later.