What’s the best way to make a million on the stock market? Find a multi-bagger, or patiently let FTSE 100 shares build and build?
I think my headline gives away my answer. And I’m not alone.
There are more than 4,000 Stocks and Shares ISA millionaires in the UK now. And most have put a lot of their cash in FTSE 100 shares.
To get rich quick might be nice, but slow is just fine by me.
Getting started
So with not a pound in savings, how would I start? I’d get cash together first. And my top way to do it is to drip feed some each month into a Stocks and Shares ISA.
Many of the UK’s ISA millionaires have used their full allowance. But most of us don’t have £20,000 a year to invest.
I’d still put away as much as I could. A pound saved early could make a bigger difference than a tenner invested years later.
Strategy
While I build up cash in my ISA, I’d work on my strategy. I don’t think it matters if we like financial stocks, dividends, traditional value stocks, or whatever. What counts is to have a strategy and understand what we want.
“Buy what you know,” said top fund manager Peter Lynch. “But I don’t know anything,” replies the investing beginner.
Start somewhere
We have to start somewhere. Maybe learn a sector, a style, an index like the FTSE 100…
Get to know it, and don’t buy anything we don’t understand. And we’ll get better at it.
I’ve met folk who just buy what they like when it catches their eye, and they end up with a ragged bunch of all-sorts. And they rarely do well. We just can’t do it all.
Long-term investing
So get my money together, as much as I can, and keep going. Then learn as much as I can, and only buy stocks I understand.
And then hold them for the long term. As another great investor, Warren Buffett, said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
And the miracle of compounding can then weave its magic spell. So how does that work?
Compound returns
The average Stocks and Shares ISA return in the past 10 years has been about 9.6%.
If 6% of that is in dividends, we can use the cash to buy 6% more shares.
Then next year, we can buy another 6%, plus 6% of the first 6%. And it can all build up so quickly.
With a horizon of 40 years, and earning 9.6% a year, we’d need to invest just £200 per month to reach a million.
Reality
Now, 9.6% might not last. I think it probably won’t. But £200 a month isn’t that much, and most of us can probably save more and more as the years pass.
So I make no predictions. But to start from nothing and make a million from FTSE 100 shares has to be worth aiming for, don’t you think?
