Is it possible to become a stock market millionaire? The answer is clearly yes as many people do just that. But it is not enough simply to aim for a million. One needs a strategy to try and achieve that target!
That does not necessarily need a lot of money upfront, if one is patient and takes a long-term approach to investing.
Here is how I could set the wheels in motion on such a long-term approach this June, buying just a couple of stocks.
Regular investment habit
Key to my plan would be saving up a pot of money that I could use to purchase shares.
To do that, I would get into a regular habit of contributing a set amount to a share-dealing account or Stocks and Shares ISA. I would need to tailor that amount to my own financial circumstances. I think making a goal realistic is an important element of trying to achieve it.
I would, however, aim to save a chunky sum each month (or week) if possible. Imagine that, in my quest for a million, I aimed to save £250,000 to invest. Putting aside £100 each month, that goal would take over two centuries to reach. Saving £900 per month should see me hit it in just over 23 years.
Investing in shares
But if my goal is to aim for a million, why do I use £250,000 in the example above?
It is only an example – I could have plumped for more or less. The key point is that my approach is about investing, not just saving. Saving the money is only a tool to give me the capital to invest in shares. I could start doing that immediately, investing the money as I save each month.
If I can earn a high enough rate of return on what I invest, I really believe I could build a share portfolio worth a million pounds. If I invest £900 per month with a compound annual growth rate of 10%, for example, I would have a million pound portfolio in less than 24 years.
Is a 10% compound annual growth rate realistic?
I think it is, depending on what shares I choose to buy and the price I pay for them. Of course, my investments could always underperform and I could achieve a much smaller return rate. That said, some shares in my portfolio have a dividend yield close to that already. M&G offers 9.9%, for example.
If I reinvest those dividends as I go (something known as compounding), I could earn more each year from the same shares even if the dividend is flat.
Diversification and quality
Like any share, though, M&G could disappoint me. No dividend is guaranteed to last.
That is why I would diversify across a range of blue-chip shares. But as I want to buy into great performing stocks, I would not start buying into dozens of different companies. To aim for a million, I would aim to build a portfolio concentrated in around five to ten great companies.
I could start that by buying just a couple of shares. I just need to find some I think look promising!
