In 2020, the UK’s state-owned savings bank National Savings and Investments (NS&I) changed its Premium Bonds policy by reducing the annual prize fund rate. This greatly reduced the prize pool available to Premium Bond holders. The prizes in this pool were difficult to win before, but now the odds are much lower, and winning a million pounds via such bonds is highly unlikely. I think investing in the FTSE 100 index and other stock market indices is a much better route to making a million.
Finding value in the FTSE 100
The FTSE 100 contains some of the UK’s best companies with an international presence. These are well established, with an edge over competitors and the ability to generate revenue. These are all important factors to consider when deciding which stocks to buy. Many FTSE 100 companies also offer shareholders a dividend to keep them invested.
In fact, I think it’s a great idea to buy and hold shares in companies, keeping them far into the future. Companies with a dividend are even better because they give shareholders a regular return. This can be reinvested to reap the benefits of compound interest.
Choosing companies with growth opportunities
I like to look at businesses that make sense to me and appear to be well run. For example, I like some stocks in consumer goods and the financial sector. I’m not keen on traditional FTSE 100 banks like Lloyds or HSBC because I think the up-and-coming challenger banks are likely to beat them at their own game. However, I do believe several sectors offer obvious opportunities for growth, such as those businesses operating in biotechnology, cyber security and renewable energy.
Making a million may seem like an uphill struggle, but it doesn’t need to be. Stock market investing is accessible to anyone who has even a modicum of disposable income. It’s a great way to put my money to work. I like the process of learning about companies and monitoring them for signs of growth and strength. It’s a much more interesting path to making a million than keeping money in a savings account, such as NS&I’s Premium Bonds account.
Some key factors I look for when first assessing which shares to buy include the following:
- I look for a low level of debt
- A reasonable price-to-earnings ratio
- A dividend yield
- An experienced management team that appears committed
- A business strategy with a competitive edge
The coronavirus pandemic has created a run on outstanding stocks, while suppressing many others. Many of the winners are now overvalued, but not all of those that have been suppressed are poor companies. While it can sometimes be difficult to find all of the above, it’s a good starting point to work from. I also benefit from reading through a company’s annual report. It gives a great overview of the company and a feel for its future, and it’s often not as dry a read as might be expected.
I think it’s important to conduct thorough research before investing my money in the FTSE 100 index or anywhere else. The Motley Fool is a great place to help with this, on the path to making a million.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.
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