I’d aim for a million doing these three things

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The idea of becoming a stock market millionaire is not just a pipe dream. Many people achieve it in real life. But many do not. I think it is possible to aim for a million buying shares. But to achieve that requires realism and discipline.

If I seriously wanted to aim for that goal, here are three things I would do to improve my chances.

Invest the right amount

Any investor’s returns in the stock market depends upon a couple of factors. How much do they invest and what is the rate of return?

Obviously, getting a rate of return far above average could boost my performance, although in practice it can be difficult to achieve. But no matter how well I choose shares to buy and hold, without putting a fairly serious amount of money into shares, I am unlikely to reach my target.

Imagine I can achieve a compound annual growth rate of 15%, for example. If I put in £100,000 today and managed to achieve that, it would take me 16 years to have a million-pound portfolio.

Putting more money in earlier can help me aim for a million. That can be a lump sum, or if that is not an option, then I can get into a regular saving habit. Either way, if I seriously hope to aim for a million, I will need to be willing to commit a serious amount of money to the project.

Take the long view

Sixteen years may sound like a long time. Then again, if putting £100,000 into the stock market 16 years ago (back in 2007) could have already made me a millionaire by now, I might see things differently!

But whether I want to aim for a million or simply build wealth on a more modest scale, taking a long-term approach to investing could help me.

That is because finding great companies in which to invest can become more rewarding over time. If a company does well year after year, that can add up to substantial gains over the long term.

JD Sports is up 26% in the past year, but has more than doubled over the past five years. Halma is down 1% in the past year, but up 90% over five years. Spirax-Sarco has fallen 2% in the past year, but gained 95% in five years.

Among top performing shares, time is typically an investor’s friend not enemy.

Focus on quality

Even a great company can stumble though. So whether I want to aim for a million or just put a small amount of spare cash to work, I always make sure to keep my portfolio diversified.

With a long-term perspective I also think the value of focusing on quality becomes even more obvious. In the short term, a very risky share can sometimes do well. But over the course of a decade or more, many risks will come home to roost. Going through the whole economic cycle, a company’s business model will be tested.

So I look for shares in businesses I think have outstanding prospects and are priced attractively, even when I consider the long-term risks involved.

The post I’d aim for a million doing these three things appeared first on The Motley Fool UK.

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C Ruane has positions in JD Sports Fashion. The Motley Fool UK has recommended Halma Plc. 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.

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