The idea of becoming a stock market millionaire has a certain appeal. I also think it is possible, even from a standing start and with no savings.
But turning an ambitious goal like that into reality takes more than just positive thinking and optimism. It needs a realistic plan of action. I reckon I could use a Stocks and Shares ISA to aim for a million.
Here’s how.
Setting the right timeframe
To begin, note that this is a long-term goal. I would not expect to start with nothing and become a millionaire in a short time. Instead my timeline here is in decades.
What is the benefit of such a long-term approach to investing?
As I see it, it means I can do the work upfront of putting aside money and finding shares to buy. Then, if I choose the right shares, I can let time do the heavy lifting of turning my Stocks and Shares ISA into a portfolio of far higher value than the money I put in.
Investing with a long-term vision
Speaking of putting money in, how much would I invest? Everyone’s financial circumstances are different and any smart investment approach needs to reflect that. In this example, I imagine investing £850 each month.
To do that, I would set up a Stocks and Shares ISA – there are lots to choose from – then start putting my money into it regularly.
Ongoing target as I aim for a million
Talking about getting my ISA value up to seven figures is ambitious. Breaking that down into a smaller series of targets could help me focus.
To achieve that goal, what would I need to do? If I put in £850 each month and can grow my Stocks and Shares ISA at a compounded annual rate of 8%, it ought to be worth a million pounds after 28 years. As I said, this is a long-term plan. Becoming a millionaire takes time and effort.
Looking for shares to buy
So what sort of shares might let me achieve that average annual compound annual growth rate of 8%? I would spread my Stocks and Shares ISA over a few different choices, so that disappointing performance by one would have a limited effect on my overall performance.
The 8% could come from either growth, dividends (that I would reinvest) – or both. An example of a share I own that I hope could give me both is Reckitt (LSE: RKT).
It sells consumer goods, a market I expect to benefit from long-term customer demand. Thanks to its collection of premium brands such as Vanish, it is able to charge a higher price for its products than unbranded competitors. That is good for profits.
The company’s shares have performed weakly in recent years. In part that is due to a disastrous acquisition of a nutrition business and I see a risk that it will continue to dog Reckitt’s overall performance even though the company has slimmed it down considerably.
Still, I saw the share price weakness as a buying opportunity and hopefully will receive regular dividends while I own the shares — and aim for a million!
This post was originally published on Motley Fool
