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The idea of becoming a millionaire in the stock market may seem fantastic. But is it? Or could you really aim for a million by investing in stocks even if you hadn't invested it before?
I think it could, and I think 2024 could be as good a time as any to start trying.
Millionaire aspirations
Let's first consider what it would take to aim for a million.
If you invested £1,000 every month and achieved a compound annual profit of 15%, you would be a millionaire after 19 years.
In other words, if I aim to make a million by starting to invest next week on that basis, I could be a millionaire in the stock market in 2042.
hit the target
Admittedly, £1000 a month is quite a big commitment. But, after all, being a millionaire requires commitment.
If you had less money to invest each month, you could still aim for a million. I would just need to be more patient.
However, what about the 15% compounded annual gain I use in my example? How realistic is that?
I think it is doable but challenging.
Warren Buffett Berkshire Hathaway has shown a compound annual book value per share growth rate of nearly 20% over a period dating back six decades. I'm no Buffett, but I could achieve my goal by learning from proven investors like him.
Find stocks to buy
Still, it would definitely have its work cut out for it trying to achieve a 15% compound annual growth rate for nearly two decades.
My approach would involve some key principles.
I would focus on long-term investing, not trading. Therefore, I would look for companies that I believe could generate substantial value in the years and decades to come.
For example, I believe that search giant Google (owned by Alphabet) could continue to build on existing successes. So I could Apple. In fact, I think there are a number of companies that could do very well, some already well established and others newer contenders.
But aiming for the kind of profitability I'm looking for isn't just about finding great businesses to buy from. It also means doing it at the right price.
What if you couldn't achieve a 15% compound annual growth rate? At a rate of 5%, for example, investing £1,000 a month, it would take me 34 years to become a millionaire in the stock market.
Complicating my profits
If I pick stocks that are doing well, I could end up holding them for a long time since my goal is to hit a million.
But in some cases I can sell them. In some cases, you could also receive dividends along the way. Instead of taking the cash out of my portfolio, I would simply continue to reinvest it in more stocks. This is known as compounding and could help me build my wealth faster.
Choosing the right stocks is important. After all, there are risks. Depending on the stocks I buy, I could end up losing some of my capital.
Becoming a millionaire is a long-term project. But I think it's a realistic goal if I approach it the right way. The longer I wait, the further away my goal will seem. So 2024 seems as good a time as any to get going!
