126- A £1.5M Portfolio Is Easier To Achieve Than You Think

In this, the final episode of Headsup on Money for 2025, Benjamin builds on last week's discussion on how much you should target in your 'retirement pot' to achieve a comfortable retirement. 

Achieving a £1.5M portfolio may seem challenging and almost impossible, but getting there isn't as hard as you may think. 

Benjamin brings this to life with various real life scenarios and looks at how timeframes, growth rates and monthly investment amounts can have a huge impact on the longer term picture. 

You'll be pleasantly surprised with the results! 

Join Benjamin Mitchell (themoneyscot), serial hater of financial jargon, as he helps make your finances clearer and ensures you never make another financial mistake.

Getting on top of your personal finances doesn't need to be complicated or scary. Arm yourself with the only knowledge you need to transform yourself from money novice to money nerd! 

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Disclaimer - please note that nothing in this podcast can be relied upon as financial advice and the content is provided purely for information and guidance purposes. Please seek independent, regulated financial advice relevant to your situation.

Transcript

SPEAKER_00 0:13

Hi, money nerds, and welcome to Heads Up on Money. Friday has rolled around once again, and we are getting ever closer to Christmas, and I thought I would do a fun episode this week building on the foundations from last week. So think of this as my early Christmas present to you. Last week you may remember I talked about potentially how much you might need in your portfolio to enjoy a lifestyle that means you can spend £4,000 a month in retirement. And I built on that in a little bit more depth by bringing in some analysis I've shared previously on the podcast, which looked at the retirement living standards, where some analysis was carried out to understand exactly what is meant by a minimum, a moderate, and a comfortable style of retirement. And you'll recall that I said to afford a comfortable standard of retirement, then broadly speaking, a two-person household would require a portfolio of around 1.5 million. Now that was fairly crass summary, in that that depends, there may be other elements to their financial plan which meets that expenditure need. They may have guaranteed final salary, defined benefit pensions, they may have the state pension, but keeping this at a very headline basis, what I said to you, Money Nerds, was a portfolio of about £1.5 million was needed. And that's pretty daunting at first. It can seem like that is absolutely insurmountable. How on earth are we conceivably going to attain that level of wealth? Well, I thought I would bring it to life today with some calculations on my side just to let you understand how the magical world of investment compounding can do the heavy lifting for you when it comes to trying to target a portfolio of £1.5 million. Now, for some people, this may not be the level of portfolio wealth you require. For others, it may be more. It absolutely depends on the standard of living you aspire to in retirement and what retirement looks like to you. But bear with me, Money Nerds. The premise remains the same. You can alter the calculations to your own situation. But let me indulge you just for a few minutes in this week's episode where I'm going to target this £1.5 million portfolio. And we're going to flip a few different things in the calculators. We're going to look at how it would vary depending upon when we start in our investment journey, the time frame we have upon which to invest, and of course how much we are allocating every month to our investments. And finally, the assumed level of growth that we hope for in our portfolio. And as a reminder, if we're going to be targeting good levels of growth, if we're ever going to achieve this elusive £1.5 million retirement pot, you're going to need to allocate your wealth to good asset classes that outperform the terminator of wealth, that is inflation, which is, of course, our global equities, allocating to the smartest companies across the globe, not over-engineering this and just letting markets and capitalism do their thing, riding along in the coattails, and your retirement journey goes with it. So you're going to need to allocate a good amount of your wealth to asset classes which deliver that. And of course, if you don't do that, that might mean that you're sacrificing some returns. So you're not accepting the short-term volatility, but you're leaving returns on the table. And I'm going to bring that to light in today's analysis by showing if you were to tailor back your growth rate, what would that mean for your ability to meet your £1.5 million portfolio? So there's lots of variables at play here. It's a simplistic model, of course, because it's assuming that you are retiring at one point in time in the future, in say 10 years from now, 20 years from now, 30 years from now, and obviously at retirement you will have this pot of money, and that pot of money will hopefully continue growing throughout retirement as a reminder. The retirement journey means the investment logic does not change. You should invest in the same asset classes that have served your accumulation journey just as well. It's one of the greatest mistakes that many a retiree makes is that when they think they are retired, they should be taking their foot off the gas, absorbing no investment risk whatsoever. But in reality, we hope you're going to be planning for a rich and rewarding retirement. So why on earth would you not continue to allow the asset classes that have served you so well to continue to serve you in retirement? So parking all of that to one side, I'm going to get into this week's episode and look at the question: how do you build up a £1.5 million portfolio? But before I do, as always, it's a quick reminder from me if you haven't already, do like, subscribe, and share heads up on money with the people in your life who may value this guidance. I'm a firm believer that taking ownership of your financial planning should be something that everyone does. It doesn't need to be as complicated or convoluted and worrying as it seems. Often just tearing off the plaster is all you need to do because once you get on top of this stuff and get under the bonnet, it's not as complicated as it initially seems. So let's get into this one. £1.5 million portfolio. How do we create one? So in each of these scenarios, I'm going to assume that we have a leg up to begin with, and we're starting our initial investment portfolio at £50,000. So as I mentioned, I'm going to vary three different metrics for targeting a £1.5 million portfolio based upon an initial investment amount of £50,000. Now if we assume in this first scenario that the individual investor recognizes the global power of investing in equities, and we assume that a net return after deduction of charges they may be paying to fund managers, to investment managers, to financial planners like myself, we're going to assume that there's a net return of 7% a year. Now obviously, this is a gross average in making this simplistic because in reality markets will do significantly more than 7% a year in many years, but in some years it would be beautiful if they return 7% a year, and sometimes they can be negative years of performance. That's the nature of the beast when it comes to investing. But that is the cost you pay to beat the terminator of wealth that is inflation. So assume, first of all, the rate of return is 7% a year. Now I'm going to assume that the investment timeframe over which we are targeting this £1.5 million pot is 30 years. So we've got 30 years of investment growth ahead of us. And if we were to say that we put in our £50,000 into the global stock markets, invest for a time frame of 30 years, and assume the net return each year was an average of 7%, then broadly speaking the investment portfolio would have grown to £405,000, roughly speaking, of course. Don't get hung up on the details here because depending upon the regularity of the compounding will determine final results. So don't get stressed about the calculations, guys, just focus on the headlines here. And what we're saying is that if they put 50 grand in the markets, left it for 30 years, they would be sitting with just over 400 grand in 30 years' time, which is a sizable amount shy of the targeted 1.5 million. So then you need to question, assuming they do not come into other sizable lump sums during their 30-year period, which is probably not going to happen in reality. There may be lump sums from certain pensions, there may be inheritances, there may be bonuses at work, times when you come into sizable capital inflows, which may mean you can park good chunks in the markets in the future. But let's keep this simple and assume that the only tool we have at our disposal is to amend our regular monthly contributions each month. How much should we be investing in an investment portfolio in order to ensure it keeps pace with inflation and indeed grows to our £1.5 million target? So I'm going to float this live time. I'm doing this modelling as I'm recording this, guys, and say that if we were to target round about £1,000 a month, then that would take us to just over £1.6 million at retirement in 30 years' time. So £1,000 a month goes into the markets and that will deliver us the £1.6 million portfolio in 30 years. I repeat, we will have met our objectives. And £1,000 a month may seem like a lot, but looking at this holistically as a couple, and indeed if you were to use pension wrappers, whereby the actual net cost to you in getting that amount into the wrapper is much less, then it perhaps does become more feasible. It's perfectly within grasp if you're going to be dedicated to your financial planning. Remember, this should feel a little bit painful every month. If it doesn't feel painful, then you're not doing enough. Again, this is a static assumption that we put in a thousand pounds a month every month for the next 30 years. In reality, what typically happens for people is they drip feed in larger amounts over time as their salary goes up, as they start to have more disposable income. And as a reminder, side note is beware of lifestyle creep, the temptation to increase your expenditure as your incomings and salaries go up across life. The reality is what you were happy with before probably is enough, and you should always be paying yourself first every month rather than inflating your lifestyle and expenditure habits. So climb off my soapbox on that. So bringing me back to the analysis, what we're saying here is an individual who has 30 years to invest and invests with a 7% net return and parks a thousand pounds a month every month into their investment portfolio, ignoring what exactly that portfolio is wrapped in, whether it's an ISA, general account, or pension, that's beyond the scope of today's session. I just want you to look at the kind of crass assumption of targeting a £1.5 million pot, let's call it that, ignoring taxation. So £1,000 a month, is that feasible? Is that not feasible? Well, if we were to alter some of the assumptions, and I said to you that the investment time frame we have is shortened to 20 years, then our portfolio has dropped to about half of that, 725 grand. So this reinforces that we're only making that £1,000 a month contribution for another 10 years. We've lost a decade, and in that we've not just lost a decade's worth of £1,000 a month, which would be £12,000 a year times £10, which is £120,000. We've lost £120,000 of contributions because we've been saving for a decade less. So how come we have drastically fallen short of our investment plan? And that is because of the fact that we have less time on our sides. This is why I say it every week, almost money nerds. Time is your greatest asset in your financial planning. Dropping a decade, we have massively inhibited the ability to meet our £1.5 million portfolio. But if we were to flip it and say we've only got 20 years because some people don't have the luxury of time on their side, and this reinforces the point I made earlier about the fact that when you get to retirement, whatever that means, it doesn't mean you take your foot off the pedal because you can still have time on your side when it comes to your retirement journey. Retirement doesn't mean your investing stops. But this individual 20-year investment time frame, 50 grand dropping into the markets, let's say they target a 7% annual return as they've done before. What do we need to be investing every month to reclaim that £1.5 million portfolio? And it goes up substantially. We can see here when I've run the analysis as I'm talking to you, the monthly contribution goes up to just shy of two and a half grand a month. So you need to park a lot more of your surplus income in the markets every month. And whether or not that's affordable will of course be determined by how much income you've got coming in, how controlled you are of your expenditure, are you living within your means or out with it? But it illustrates that losing that decade means obviously we need to nudge up the level of monthly contributions. If I was to cut the decade back by another 10 years, so we're only looking at that 10-year investment time frame, then of course we need to push up the investment further. And this reinforces again that if we're going to make a £1.5 million portfolio, then you're talking about $8,000 a month to be saved into your investment portfolio. Few people will be able to save diligently that a month or have the financial means to do so. So having time on your side, investing while you are young, not delaying till tomorrow what you can start today and leveraging the power of the stock market now, that's the greatest financial guidance I can give you. Now, if I was to amend the calculations slightly and we assume that we go back to our first case, we've got an investment time frame of 30 years, we've done the sums, we've worked out how much we can allocate to the markets every month, and this couple, this individual, whatever their situation might be, they say to me, Benjamin, the most we can allocate to our investments every month is 700 pounds, give or take. So with that, they feed in 700 pounds to their investment pot, they target the same growth rate that they had before, they've got a 30-year investment time frame, their pot comes at 1.26 million, so we're still potentially short of what their number might be, of what their notional target pot might be, which to remind you, in this example is 1.5 million. So one of the levers in which we can pool is we don't have control over our monthly expenditure, our monthly outlay. We don't really have control of how much time we've got, we've got 30 years but no more, so we can amend our risk profile. Perhaps this might mean allocating more of our surplus wealth, cash savings we may have, to the investment markets and investing in equities. Remember, we're assuming here a 7% net return. Hopefully, global equity markets will deliver better than this over the long term, which they have done historically. But if we were to drop this down to perhaps the historical return for bonds, let's say 3%, then the eventual portfolio drops down to 530 grand. This reinforces to you guys the importance of having a good level of growth in your assets. And it brings to life things like when you enjoy in a workplace pension scheme that you'll be enrolled into the middle of the road, middle risk fund, because no employer wants to take on the risk of choosing the fund for you. You'll be in a middle of the road approach. But if you were to invest a little bit of time today, ensure that you're investing with a level of equities that is appropriate to your investment timeframe, which I would argue everybody should be allocating strongly to global equities, it can make a massive difference. A 3% growth rate would return a £531,000 portfolio in 30 years, a 5% growth rate, £808,000. A 7% growth rate, well, as I said before, that is £1.26 million. And if we nudge it up to kind of the general trend of what we've seen in global equities of 8%, perhaps even 9% a year, we're easily able to meet our targeted sum of £1.5 million. So undoubtedly, I could get carried away with endless iterations of these calculations. Can you tell this stuff really, really excites me? But the key takeaways that I want you to take money nurses is when I said to you originally that a £1.5 million portfolio is what you will need in order to sustain what's called a comfortable retirement, assuming you don't have other puzzle pieces linking in with your retirement planning. But keeping it very simple, if you want to get a pot of £1.5 million, which initially seems very, very overwhelming and perhaps completely unattainable, hopefully this commentary has given you some confidence and some impetus to take ownership of this because it is financially doable. The keys are allocating to the right asset classes and delivering good levels of growth, i.e. investing in equities. The key is of course allocating to this and investing as early as possible. The more time you have on your side, the greater your likelihood of attaining this level of wealth in the future. As I mentioned last week, Warren Buffett is a notable, notably wealthy man. Well, a significant amount of his wealth, 99% of it, came after his 50th birthday purely because of the snowball effect of compounding of investment returns. So you invest in the right asset classes, you invest with as much time as you can, and you invest a good amount of your surplus income every month. Pay yourself first, treat your investment pot like any other direct debit. And by doing this diligently every month, the goals that seem insurmountable and totally out with the realm of capability suddenly become very capable. And this is why the idea of being in a millionaire with your investment portfolio is not that elusive anymore. It's perfectly within grasp. A few episodes ago I talked about Ronald Reid, the millionaire janitor. He didn't have a significant amount of wealth and income to do with as he wished, but he allocated to the correct asset classes. He did it over a long period of time, and he invested regularly, and he left things alone. That's the last commentary I'll give you. Is stop tampering, recognize your limitations and your abilities, and instead just let markets do their thing. Because in this scenario, we've seen allowing markets to do their thing means you will achieve your financial goals. And of course, I'm very aware the analysis I've given in this episode is quite simplistic. There's lots of variables that will occur. Yes, there will be times when markets decline and things don't look quite so rosy. I recognise that. And yes, I recognise other life needs come up. There may be things like mortgages, paying for childcare, helping out children, onto the property market, lots of variables in life, and I know it's not as simplistic as this, but the maths here should give you the confidence that it is achievable. And I would argue that real life can actually be more favourable than the modelling I have done, because as I said, I'm assuming a static level of contribution over 30 years. In reality, when I have my annual planning meeting with clients every year, I try and nudge up the contribution level to not just how much inflation has gone up, but trying to outperform it. So you're always staying one step ahead. So that may mean you've got a bit of discretion. If you do not have the monthly affordability to park significant amounts every month at the moment, just start with something. Get the snowball accumulating. And over time, when you're a bit more flush, you've got a bit more disposable income, the mortgage is paid off, whatever your planning might be, then you can allocate a little bit more. But there really needs does need to be that balance between allocating just enough now because you want to get the power of time on your side. So that's it. £1.5 million portfolio, more achievable than you thought it would be. Correct me if I'm wrong. Okay, money nerds, let's wrap up this episode. It linked on nicely from last week's, as I mentioned, we've talked about how much you might need to achieve a certain level of expenditure in retirement, working back under the pretense that we need to get to a pot of 1.5 million. What does that mean in terms of the time frame you have to invest, the investment growth rate you should be targeting, and how much you should be parking every month from your surplus income? I hope this has given you lots of food for thought and hopefully lots of encouragement. Financial planning is doable, guys, you just need to invest a bit of time in this now because it will pay off massively over the long term. Sadly, most people realise this stuff either not at all or far too late. But you're not most people money nerds. So with that, I'm going to wrap up wrap-abo on this episode and indeed on Heads Up on Money for 2025. Gonna have a little bit of a break over the Christmas period, practicing what I preach in terms of valuing life more than work and all that jazz. But it's been an absolute joy to have you with me this past year. I really hope you've had a lot of value from Heads Up on Money, and you will continue to do so next year in 2026. If you have valued Heads Up on Money this year, can I ask one final favor of you? Please leave me a little review or a comment or subscribe. It really helps get the podcast up the podcast charts and gets financial education to more people. It really does mean the world to me, and thank you, Money Nerds, for being with me on this journey. Wishing you and your family a wonderful Christmas, a nice break, and relaxed. Over the festive period, ready to get going again with your financial planning in 2026. I've been Benjamin Mitchell. Thank you, Money Nerds, for listening, and I'll see you next year. Goodbye for now.