The stock market is the best way I know to build a large pot of wealth for minimum possible effort. It’s possible for an ordinary saver to make a million from shares, provided they start early and give it time.

Personally, I like to invest in individual company stocks. By doing my research and building a balanced portfolio of FTSE dividend and growth shares, I’ve been able to increase the value of my pensions and ISAs at a faster rate than the overall index. I accept that’s not for everyone. Yet it’s still possible to harness the wealth-generating power of shares by investing in a simple, low-cost tracker fund.

Exchange traded funds (ETFs) are the investment phenomenon of the Millennium. They now manage a staggering $11.5trn of global assets. PwC predicts that will top $19.2trn by June 2028. There’s a good reason for this.

Vanguard S&P 500 ETF

ETFs dispense with highly paid fund managers and simply track their chosen index passively, whether it goes up or down. This allows providers to slash charges to the bone, allowing investors to keep more of their capital gains and dividend income.

Before ETFs took off, actively managed investment funds typically charged 5.25% upfront and a further 1.25% a year. By contrast, the popular Vanguard S&P 500 UCITS ETF has no upfront fee and charges just 0.07% a year.

That makes a huge difference. Let’s assume I put £10k into an active fund and another £10k into a tracker, and both grow at 7% a year before charges. After 30 years, the active fund would give me £50,698 after charges, while the ETF would return £74,643. The ETF is worth 50% more, purely because of its lower fees.

When I transferred three legacy company pensions into a self-invested personal pension (SIPP) last year, I put 20% into that Vanguard S&P 500 ETF right away. At a swoop, I had access to many of the greatest companies in the world, including Nvidia, Microsoft, Apple, Amazon, Meta Platforms and Google-owner Alphabet and Tesla. Plus the remaining 493 shares listed on the S&P 500.

Passive income and growth

Over 12 months, my Vanguard fund has delivered a total return of 22.89%, with dividends reinvested. It’s up 96.08% over five years.

Obviously, I’d have smashed that by buying the best-performing stock on the S&P 500, AI chip maker Nvidia. It’s up 176.2% over one year and a quite frankly ridiculous 2,987% over five years. That’s something no tracker will ever do. Yet I don’t have sufficient knowledge to buy US shares, and I don’t want to simply follow the crowd.

Yet I love researching and buying UK shares. That’s why I don’t hold a single UK index fund, let alone an actively managed one. I’m confident of beating the FTSE 100 through my own efforts, and so far I have. Quite nicely.

The average yearly total return of the S&P 500 is 10.52% over the last 30 years. At that rate, if I invested £300 a month in the Vanguard fund, and increased my contribution by 5% a year, I’d have £1.12m after 30 years. I’d have made my million!

Investing isn’t a get-rich-quick scheme, as some wrongly think. It takes years or even decades. Returns aren’t guaranteed. I don’t find picking stocks a pain, but a pleasure. In my experience, the results are more rewarding too.