What is £1 million really worth?
What do all those zeros really mean, and what will they buy?
Millions, billions and even trillions now make the headlines, but what do all those zeros really mean, and what will they buy?
You may think you know your billion from your trillion, but it’s not quite so simple.
• One billion is now 1,000 million – 1,000,000,000. Pre-1974, in the UK it was one million million.
• One trillion is normally now taken to be 1,000 billion – 1,000,000,000,000.
One million is no longer as impressive a figure as it used to be. For example:
• At age 65, £1 million will currently fund an inflation proofed pension of around £2,400 a month before tax.
• Placed on deposit at the Bank of England base rate (0.1%), the interest produced by £1 million would only be £1,000 a year.
• Invested in the UK stock market, £1 million would generate annual dividends of £33,500, based on the current market yield.
Billions are what the government is spending – and borrowing. In 2020/21, the government is expected to have borrowed around £400 billion, equal to around £6,000 per head of population. That will take some repaying: adding 1p to all income tax rates would only raise just under £7 billion a year.
Trillions are rare in a UK context, but currently £2.1 trillion is a key figure: it is roughly both the size of the UK economy and the total of government debt.
So, what do all the zeros tell you? Firstly, retiring comfortably probably costs much more than you thought. Secondly, you should look to your own financial planning to cut your tax bill, as the government cannot afford to do so.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.