It is easy to dream of being a millionaire, but is there an easy way to make it happen? I’m not sure there’s an easy way as such, but I wholeheartedly believe that one of the less difficult ways to accumulate significant wealth is by investing in shares.
I recently read How to make a million slowly by John Lee, probably the first person to become an ISA millionaire. He started with far less than that amount and accumulated his £1m over time. He is an example of what can be achieved by following these key steps.
There’s no way to accumulate wealth from a modest level and get to the £1m mark without setting aside money to invest on a regular basis. Even if the amount per month is small that’s fine but consistency is critical.
Investing regularly allows you to diversify your portfolio, increasing the size of the dividends you receive each year, which can be reinvested into more shares. Investing regularly also means you’ll have cash in your ISA for when companies become cheaper or opportunities present themselves.
Keep your head
Psychology is a big part of investing. Set yourself a goal and a strategy and then keep going. The stock market won’t always go up, but over long time periods, the direction of travel is nearly always upwards. Try to ignore too much background noise and concentrate on investing in the shares you feel comfortable with.
Do your research
There’s no substitute for hard work. Like with so many things the more you put in the more you’re likely to get out.
Especially when investing in individual shares there’s no way to be successful without dedicating time to researching what a business does, the quality of the management, the threats and opportunities to the company and the industry it operates in, working out if a company has too much debt, and so on.
Avoid too many unnecessary risks
Social media and bulletin boards are filled with speculators trying to get investors to pour money into some obscure mining or biotech company making zero revenue.
Think of Wolf of Wall Street type stuff and you won’t be far off the mark. Part of doing in-depth research on companies and learning financial ratios and so forth is to avoid these overly risky investments that hugely damage your chances of becoming a millionaire.
I’d suggest focusing on quality companies with both income and growth potential. I’d advise investing in dividend-paying companies making a profit. Another good piece of advice is to look for companies where management have significant holdings so that their interests are aligned with yours.
I believe many people who are prepared to invest regularly, hold their nerve and see out the ups and downs of the stock market without panicking, have a long-term goal and mindset, dedicate time to finding above average companies to invest in and avoid too many risks, can become millionaires.
It’s not easy, but it is possible. Investing in the stock market isn’t for everyone but it does present one of the easiest ways I think to build a portfolio of investments worth £1m or more.
Andy Ross has no position in any of the shares mentioned. 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 2019