How realistic is it to dream of becoming a multimillionaire by investing in shares without any money saved up to begin? If I am very patient, I do think I could aim for millions by drip feeding money regularly into the stock market. Here is how I would go about it.
Stay the course
Putting a few hundred pounds a month into shares might make me rich – but only slowly. Over time hopefully I could see the money add up, both from adding a regular £130 and getting gains from the investments I have already made.
But I would not start buying shares thinking it is some kind of get rich quick scheme.
Instead I would adopt a timeframe of decades and try to identify great companies I reckon might have a brilliant future. If I am able to invest in such shares at an attractive price, that could form the basis of my plan to aim for millions.
Doing the maths
Investing £130 a week may not sound like a life-changing financial strategy. But the regular saving will add up. At that rate, I could put aside £6,760 each year to invest.
If I keep investing and am able to generate an average 10% annual return – which I would reinvest – then I could be a millionaire after 29 years.
However, my aim in this example is not to be a millionaire but to aim for millions. To do that and earn at least £2m, using the same assumptions, would take me 36 years.
Did you notice something interesting there? Doing exactly the same thing every week, my second million pounds would only take seven years compared to four times that long for my first! That shows the snowball effects of compound investing, when the money my investments have already earned make me even more money.
In fact, after my first 29 years I would have earned just over £1m. But after another 29 years I would be sitting on a portfolio worth over £17m! All of that would have come from investing £130 a week, year in and year out. The plan does not change — but the speed of returns might, thanks to the power of compounding.
I’d aim for millions smartly
The example shows how time can have a huge multiplying effect on the rewards from great investments.
That is why I would be smart about how I aim for millions. Instead of just focusing on the possible rewards, I would always consider the risks involved and try to minimise them. For example, I would build a diversified portfolio of blue-chip companies I understand. I would aim to buy and hold instead of speculating in short-term investments.
Where to start
I already hold some shares in my own portfolio I think are such quality blue-chip firms with great prospects, like Legal & General and Altria.
If I wanted to put the plan above into action right now, I would put aside my first £130 in a share-dealing account today. But I would also start searching more share ideas that could be the lynchpin of my success and help me aim for millions — with a practical plan.
The post Could I aim for millions by spending £130 a week on shares? appeared first on The Motley Fool UK.
C Ruane has positions in Altria Group and Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022