Forget property! I’d aim for a million buying UK stocks

We are very interested in this country house. It’s all about how to get your first mortgage or when to get on the property ladder. Property can be lucrative, and buy-to-let is a popular investment option. But UK stocks offer another route to long-term wealth that doesn’t involve surveyor fees or boiler breakdowns.

If I want real wealth – let’s be a millionaire – I think the easiest way is to invest in stocks. And the maths behind the £1,000,000 hit is surprisingly simple.

Saving to buy a house is not enough

Even with a mortgage, before I can buy a property, I need money to put it down. Let’s take the average deposit on a house in the UK is £53,935 in 2021.

I have to factor in the additional costs that come with owning a home. Maybe I need to install double glazing, or maybe the boiler needs replacing. And if I’m buying to buy, I might be looking at management fees. Let’s add £200 a month to account for these expenses.

So a £53,935 deposit together with £200 a month on a typical 30-year mortgage would pay for the house. And in 2021, the average first home will cost £264,000. That is some way off the million, although house prices will probably rise over the years. But how does it compare to investing?

The magic of compound interest

The return on investment in stocks and shares is difficult to calculate in the short term. However, I can see clear trends over longer periods of time.

At FTSE 100 – the 100 largest companies on the London Stock Exchange – has returned about 8% per year since the index began in 1984. FTSE 250 it has returned approximately 10% per year.

Here’s what happens with a starting amount of £53,935 and £200 per month assuming a 9% annual average return, and also a 5% annual return if it’s lower than historical performance.

Of course, a mortgage for a home is a necessity for many of us. But this calculation shows why I think the stock option is better than a buy-to-let mortgage. Not to mention that owning shares is often as simple as checking a few numbers on the screen.

Also, like paying off my mortgage first if I earn more, I can invest more to reduce the time it takes to reach my millions or build a larger amount.

It should be noted that inflation means that a million is worth less in the future in real terms. And there are other risks too.

Stocks are not risk free

Many people see investing in companies like gambling. Whereas a house is a real thing that you can use, walk around and live in.

It’s true that companies can go bankrupt or just give terrible returns. Lloyds Bank is down about 90% in the last 25 years, for example. Many stock prices may fall or simply tread water. And the company can also cut dividends.

The key to managing these risks is diversification. Many different types of companies in different sectors offer the least amount of risk. And in the long term, a stable return of 8-10% from a diversified portfolio can make the £1,000,000 figure a reality.