Your First £100,000 Is The Hardest

Published in Investing on 14 June 2012

The key to building wealth is making a start.

In principle, making a tidy £7,000 or so a year from the stock market isn't difficult. In fact, that's pretty much what you'd have made over most of the last few decades -- provided, of course, that you'd got £100,000 invested in a representative basket of index-tracking shares in the first place.

And therein, of course, lies the rub. Once you've got wealth, it's relatively easy to accumulate more. As the wealthy know all too well, naturally.

Looked at another way, let's take an investor with £100,000 invested in that representative basket of shares, or an index-tracking fund, or a low-cost ETF.

Staying with that historic 7% return, how many years before that £100,000 has doubled to £200,000? I'll tell you: 10 years and three months to clock-up the next £100,000.

And I'll tell you something else, too: I'll bet it took rather longer to accumulate the first £100,000.

You won't do it this way

Hence, of course, the title of this article: The First £100,000 Is The Hardest. That was certainly true in my own case, and I'm sure that the same applies to many people.

Yet time and again, I see people pursue a half-hearted approach to building-up their wealth. Typical mistakes:

  • Relying on cash savings in bank accounts. Do they realise that today, real interest rates are negative? You won't get rich that way.
  • Relying on big illiquid bets on property. I'm not saying that it can't be done, but I am saying that it is more work -- and riskier -- than many people suspect.
  • Relying on high-charging 'advisors' and the products that they hawk, instead of opting for low-cost vehicles such as index trackers, ETFS and solid blue-chips.

And that's before considering the enormous numbers of people who don't even get as far as accumulating any spare cash to invest in the first place, but blow it on holidays, meals out, expensive hobbies and other lifestyle fripperies.

Ten steps

To me, the starting point for accumulating that first £100,000 is The Motley Fool's Ten Steps to Financial Freedom. You know the kind of thing:

  • Get out of debt.
  • Save regularly -- and if you can't, adjust your lifestyle until you can.
  • Take those savings and invest them, for higher returns.
  • Use tax-efficient savings and investment vehicles.
  • Protect what you've got.

Not read it recently? Here's the link again.

Getting started

All of which is great, but still leaves many people nervous about taking their first steps into the world of investing.

You know the sort of thing I'm talking about: taking a chunk of their hard-earned cash, and actually putting it in the stock market -- as opposed to fantasising about putting it in the stock market.

And if that description fits you, then consider downloading this special free guide from The Motley Fool -- "What Every New Investor Needs To Know" -- which aims to demystify the process. As I say, it's free, so what have you got to lose?

While you're at it, take a look at its companion, "10 Steps To Making A Million In The Market". I think it's one of the best motivational guides to investing that I've read, and one that is packed with practical steps that the beginning investor can make. It too is free, and again, all I'd say is this: what have you got to lose by reading it?

Save to invest

The bottom line, though, remains the same: you can't invest cash you haven't got.

And in today's economic climate, where there's no doubt that hard-pressed consumers are feeling the pinch, it's easy to put off notions of investing until times improve.

But that could be a while off. So take a look at your lifestyle, take a look at your household expenditures, and see if savings can be made. Because from those savings will come investments.

Remember, the first £100,000 is the hardest.

Oils, Pharmaceuticals, Banks, Telecoms -- just where should you invest today? "Top Sectors Of 2012" is the Motley Fool's latest guide to help Britain invest. Better. The report is free.

Further investment ideas from Malcolm Wheatley:

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

zoolook 14 Jun 2012 , 3:41pm

"Yet time and again, I see people pursue a half-hearted approach to building-up their wealth. Typical mistakes:.....Relying on big illiquid bets on property. I'm not saying that it can't be done, but I am saying that it is more work -- and riskier -- than many people suspect"

Are you including home buying?

ProfessorMarcus 14 Jun 2012 , 4:07pm

For *most* people with a mortgage, kids, commuting costs etc. the first £1000 is the most difficult.

Then before the £10k point is reached there is the chance that a large unecpected capital cost is incurred (new car, house repairs, kids going to university etc).

So it's important to have quite a large cash buffer even when interest rates are pitiful IMHO.

From my own experience I have a small portfolio but I can already see how there's a point where investing becomes self-perpetuating and dividend re-investment keeps the snowball effect rolling.

AleisterCrowley 14 Jun 2012 , 4:29pm

taking a chunk of their hard-earned cash, and actually putting it in the stock market
Hmm, well doing that over the last few years could have resulted in a significant loss of 'hard-earned'
I'm not talking about speculative stuff, even a 'blue chip' diversified portfolio may have taken a battering. Tends to put one off, and make the 3% available for cash look rather attractive.

jaizan 14 Jun 2012 , 5:00pm

Yes, investing in the stock market COULD have resulted in a significant loss.
However, putting it in a bank GUARANTEES a significant loss over time, as post tax interest rates are nowhere near keeping up with inflation.
I've managed to make substantial gains investing over the last 12 years, as have many others.

WealthyInvestor 14 Jun 2012 , 6:50pm

Good article. Yes for many £100k may seem like a massive mountain to climb, but all wealth creation starts somewhere, and it builds, and that is the point being made here. Once you amass a certain figure, it starts to snowball. Great things happen from small beginnings.

dhorsley 15 Jun 2012 , 9:36am

It took me 11 years 4 months of stock market investing to reach 100k. Best decision I ever made, putting a significant sum into shares. It will be interesting to see how quickly it takes to double with dividends reinvested over the next few years. I'm more interested in how the dividends grow though, as eventually they will be a significant part of my pension. My predictions from past performance is that I should be able to live of the dividends alone in 5 years.

AleisterCrowley 15 Jun 2012 , 1:16pm

Yes, investing in the stock market COULD have resulted in a significant loss.
However, putting it in a bank GUARANTEES a significant loss over time, as post tax interest rates are nowhere near keeping up with inflation.

Taking my entire 'portfolio' I reckon I've just about matched a savings account over he last 3 years..
Must be all the risky bets like...ermm...AV/GSK/BA/RSA/AZN

(I am currently 60% cash 40% equities FWIW)

apprenticeDRL 15 Jun 2012 , 4:42pm


But think of the fun you have had in those 3 years :)

goodlifer 15 Jun 2012 , 10:29pm

Many thanks dhorsley,
I'm way below you on the ladder, but you make me think perhaps I'm not so stupid as I sometimes feel.

FWIW, I came into the market in spring 2009, hoping/planning to achieve my first 100,000 by 2019.

So far I've put in about 72 grand, but that's the end of my available capital.
So i just reinvest my dividend payments each month, together with any odd peanuts I may not have spent

The book value of my portfolio is down about 7%, but I can live with that - particularly as the dividend payments are way up on last year's.
Maybe - I only said maybe - the snowball effect is beginning to work

There've been some nasty losses - notably HMV, HOME and CW
To compensate there've been some opportunistic, profitable sales, including IPR, DGE, TSCO. RIO, UU, BLND, BARC, NFD, ANTO and GSK; some of these I've bought back later, cheaper.

I've never sold anything without reinvesting straight away in something more attractive.
Even so, you could argue - particularly with hindsight - I'd have done better to hang on.

Old Omar puts it much better than I can:

The Moving Finger writes; and, having writ,
Moves on; nor all thy Piety nor Wit,
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.

gimpex 18 Jun 2012 , 7:00pm

"Even so, you could argue - particularly with hindsight - I'd have done better to hang on."

Found the same . Overall should have kept , rather than buy and sell and rebuy ( or not cause I think its gone up too much )

BrnzDrgn 19 Jun 2012 , 1:52pm

I bought a house, kept some back for emergencies and have saved it back up to 17k. Some of this is in the Stock Market but one bad move cost me 4k otherwise I would have 21k. So investing is not the great hope if you timed it wrong getting into the market and bought the wrong share expecting a bounce back. Lesson learnt, start over with my choices and hold what I already have until it bounces back properly. Now what I need are ones that are steady and pay a good dividend (more reading required).

Basia02 19 Jun 2012 , 3:00pm

At last I have found a use for this info and I can answer this question!
£100000 - 17 years
next £100000 - 17 months
next £100000 - 28 months
next £100000 - 26 months etc
The problem is of course that this includes earnings, not just investments. Skewed by the fact that I as approached £100000, I had my best year of earnings ever, over £100,000. Sadly never to be repeated.
Anybody who is making 7% at the moment is doing pretty well.

johnjt 19 Jun 2012 , 4:23pm

Hindsight, of course, plagues us all. I remember a company called Racal Vodafone offering shares. I knew Racal to be an interesting company and plunged in with some £250 and left well alone with all dividends reinvested. I am pretty happy with the result, if only I had the cash, courage or foresight to have put £500 in at that time!

Kingfisher55 19 Jun 2012 , 4:37pm

I started investing in November 2009, and drip fed £100,000 into the market over a period of a year. Some shares I've traded on opportunities. I've taken some tactical losses to re configure the portfolio as opportunities were identified and re invested all dividends. As of an hour ago these are the results:

Current value £102,500, total investment £127,093, Dvidends pa £5186. What I have is significantly more volume of shares now, and while I would prefer it if the values were higher I'm not worried as I can buy more volume with the dividends.

You only make a loss or gain when you sell, and I try not to forget that.

MoneyPower100 19 Jun 2012 , 9:47pm

Would the dividends from a FTSE All-Share tracker be worth more than the return from the average savings account?

jasonjarvisgbr 25 Jun 2012 , 1:57pm

A little realism, perhaps ?

I've been ploughing backi divi yields of about 9-12k per year for a few years now and yet my portfolio valuation is about neutral. My divis have are getting healthier as I tweak my holdings towards HYP - but there's been significant capital depreciation since about 2010. Add in couple of doozers (thank you Halfords, Centamin) and I would say I've added about 30k-40k cash over the last 2-3 years just to stand still in terms of portfolio value.

The fact remains, that apart from equities, there's precious little out there for your money - even to simply hedge against inflation. So I remain a net buyer of the market - but I'm hoping for much sunnier weather ahead.

jadeplant 25 Jun 2012 , 2:23pm

I started investing in shares last summer, following on the big drop, as that was when a lump sum became available. Looks like I was very lucky with the timing there. I felt bad for all those whose long-term investments had taken a big hit.

AJP110 25 Jun 2012 , 4:45pm

10 years and three months to clock-up the next £100,000.

There is no mention of what 10 years inflation would take out of the £100,000.

nmmerri1 25 Jun 2012 , 8:34pm

Kind of on my way with an accidentally diversified portfolio. Got a FTSE100 tracking ISA when I first started being interested and reading the Fool. Still going with that but now also have 4K in shares - half in TSCO, £400 in CNA as I was an AA member but held onto the shares. Around £280 in GSK as I started to learn more and the rest in what started out as £100 chunks in what the Share Centre reckoned were not in the FTSE100 and were high risk/high growth. Lots of learning points there, not least dealing charges of £7.50 representing a 7.5% handbrake!

As a science-brained person, I find it annoying that there is no black and white formula I can follow but am now finding it very interesting to learn about the psychology of things like anchoring, framing and survivorship bias. Each new thing I learn makes me realise exactly what I was guilty of!

Apart from loving Excel, I like to think that the money I put in either buys me a chunk of a decent business, teaches me a lesson, would have been spent on wine or can be sold on to a greater fool.

Xrat 26 Jun 2012 , 4:39pm

1st £100,000 took four years (arriving in March this year.)

Since then I've seen that first £100,000 several times, now if I can just keep hold of it till the end of the tax year the next injection should keep me over the threshold (hopefully!)

All my investments go to a SIPP, I just get a warm glow every time I see those tax refunds come bouncing back! I can't say I'm doing anywhere near as well as Alan Carr but....., it's better than any dividend I ever see.
If I can add to that, by turning a profit on a share greater than I would have by investing in cash, so much the better.

compound200 29 Jun 2012 , 12:51pm

most important has to be your wage

for most people it would be easier to reach the moon then fill full tax yearly isa allowance.

the cost of living is very difficult

im on 20k a year--single

but im slowly managing to turn my financial situation

shauniekent 02 Aug 2012 , 9:59am

I'm still saddled with university debt, a job paying 50% over minimum wage and i have given up hope of owning my own home (for the next 20 yrs at least!) Oppurtunities to take a more responsible job or earn more are hard to come by, let alone findin a job i enjoy at the same time!

I have a low level of savings i like to dabble in the stock market out of interest and to learn. Sa it goes I keep calling winners but not putting my money where my mouth is!

And thanks to all of you who contribute on MF - i've learned a lot.

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