All we have to do is buy the most brilliant FTSE 100 stocks there are. Never pick any losers, then just sit back and watch the cash rolling in.
Stay tuned, and next week I’ll tell you how to cure the world of all known diseases.
Oh, right, I’ll be serious. But there is an element of truth in what I suggest. At least as far as some people’s thoughts lead them when they start out.
Ask any inexperienced investor how to get rich from shares. And I’d bet a good few of them would say it’s all about finding the next big multibagger.
Not so easy
I’ve come across some who think it’s simple to do. And that they can easily avoid the obvious losers. I don’t know anyone who’s had any lasting success that way, though.
If we look at the world’s most successful investors, they all made their millions (and even billions) by slowly accumulating profits from long-term, successful companies.
Warren Buffett is perhaps the best example. Since he took the helm of investing firm Berkshire Hathaway in 1965, his shareholders have enjoyed an average 20% return per year.
That would be enough to turn a lump sum of just £1,000 today into more than £1.4m in 40 years.
What could we achieve?
I don’t expect many can make 20% per year consistently.
So I’ll look at how we might make a million using what I think of as a typical Warren Buffett stock. He’s big in insurance, and I’m going to pick Legal & General (LSE: LGEN).
I think it’s one of the best value FTSE 100 dividend stocks at the moment too, which is a bonus.
Legal & General is on a 7.8% forecast dividend yield. It won’t stay the same for ever, and the share price will move. But I’ll take that as a snapshot to see what might be possible.
Making a million
At that rate, an investment of £350 per month could compound to a bit over a million pounds in 40 years. That’s really not a huge amount out of many people’s salaries these days. And anyone who could put away £1,000 a month could hit the target in 27 years.
And for those who can use the full Stocks and Shares ISA allowance every year, it could take only 21 years.
Legal & General itself clearly carries risk, as it’s in a sector that’s often hit hard by weak economic conditions. We can see that right now, with the share price losing 3% in the past five years. So, diversification is a must, I say.
Get rich slowly
But I do think using this as an example shows the best chance most of us have to make a million. And that’s to get rich slowly, by putting our cash in quality companies that pay good dividends. We then hold for a couple of decades or more.
And even if we can’t invest enough to reach a million, long-term stock market investing can still reap some great rewards.
