I’d aim for a million, thanks to just a few shares
Is it possible to become a stock market millionaire? It certainly is – and many people have done it. But for those serious about wanting millionaire status, two key things matter.
First is how much is invested. The smaller the amount put to work, the slower the progress. Secondly is the choice of shares.
Getting serious to aim for a million
In terms of how much money to put to work, everyone’s financial situation is different.
But if I had half a million pounds, say, I could become a millionaire by investing in shares that doubled. With £100,000 to invest, by contrast, I would need much stronger overall performance to hit my goal.
Like many people though, I do not have a spare £100,000 lying around!
So what if I started from nothing? Should I still aim for a million? I think I could, by getting into the habit of regularly investing what I could afford and building up my portfolio over time. The more I was able to invest, the faster I ought to be able to hit my goal. That said, I see it as a long-term project.
The best of the best
What about the shares I buy? One approach a lot of people seem to take is simply to invest in a wide portfolio of fairly decent-looking blue-chip shares like Diageo and Tesco then hope for the best. But hope is not a strategy. Spreading my portfolio too widely would hurt my overall returns, perhaps dramatically.
In many areas of life, overall outcomes are mostly driven by a small number of factors. So it is with the stock market. A tiny group of massively outperforming shares like Amazon has driven a substantial part of the entire stock market’s returns over time. That will likely remain true in future.
I would want to focus on just buying such shares – the best of the best.
If I invested £100 each week into a portfolio of 20 shares with an average compound annual growth rate of 8%, I would reach my target of a £1,000,000 portfolio in 36 years. But if I invested the same money in just the best five of those shares – with an average annual compound growth rate of 16% — my plan to aim for a million would take only 23 years.
By doing less but focusing on outstanding quality, I can speed up my progress dramatically.
Finding shares to buy
In that example, the shares in my smaller portfolio were also in the larger one. It is just that because the larger portfolio had more companies in it, the overall impact of any one outstanding holding was reduced.
The challenge is deciding which of the shares are the outstanding ones that merit a place in my smaller portfolio of just five to 10 companies. That is easy to know when looking back, as with Amazon 20 years ago. But what about looking forward, which I must as an investor?
I would decide what I think are the hallmarks of outstanding shares. Stock market history offers a lot of data on that topic. Then I would spend time searching for shares that meet those criteria — that I think could really help me aim for a million.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com, Diageo Plc, and Tesco 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.
Motley Fool UK 2023