Stock market

Here’s how buying FTSE 250 shares could help me turn £20k into millions!

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Investing in shares can be a bumpy ride when economic conditions turn sour. But as time goes by, the stakes rise FTSE 100 And FTSE 250 Companies have proven a profitable strategy for millions of people.

Footsy has returned an average of 7.5% annually since its inception in the mid-1990s. The FTSE 250 has an even more impressive record, returning an average of 11% annually.

Such returns illustrate why investing in stocks and shares can be a better long-term option than simple savings. Share prices can go up as well as down. But spreading capital across a variety of companies can help individuals reduce risk, and ultimately pave the way for life-changing profits.

A life-changing comeback.

Let’s say I have a lump sum of £20,000 to invest in a FTSE 250 tracker fund. I like this idea because exposure to hundreds of different companies reduces the impact of company or industry related issues on my return.

If the index continues to deliver an average annual return of 11% I’ll turn that £20k into a cool £534,162 after 30 years. This illustrates the wealth building power of compounding, where I make money on any reinvested profits as well as the initial amount.

Two top hacks

Whether a percentage is drawn down each year, or used to buy an annuity, such a return can set me up with a healthy passive income for the rest of my life.

But while impressive, I have two ‘cheat codes’ that I believe can help me make even better returns. The first is to invest some extra each month to increase the compounding effect over time.

Let’s now assume that I use the extra £200 a month to buy FTSE 250 listed shares. Using the same timescale and rate of return I would have increased that £534,162 to £1,095,065. It’s almost double What have I done with just that £20k initial investment?

Another wealth-building hack is to pick individual stocks to buy. I can supplement this with the addition of a tracker fund. Alternatively, I can diversify my portfolio without using the fund by buying a wide range of companies.

A FTSE 250 stock on my radar

For example, I can target index-beating returns by buying high-dividend stocks. The theory is that the large shareholder payouts they deliver will supercharge my compound returns as they are reinvested.

Tretex Eurobox (LSE:EBOX) is a high yielding company that I am considering buying today. At current prices of 51.2p, it carries an impressive 8.4% forward yield, comfortably beating the FTSE 250 average of 3.4%.

On top of that, the business – which allows warehouses and distribution centers in mainland Europe – trades at a forward price-to-earnings (P/E) ratio of 11.4 times.

This is less than its five-year average of 19.6 times, and suggests that the share price may rank in order to increase the return on my capital.

The current turmoil in the Eurozone economy poses a threat to the tri-tax in the near term. But the long-term outlook is extremely encouraging, as evolving supply chain management and the growth of e-commerce drive demand for storage and distribution hubs.

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