Making a million by the time you retire is a goal which many investors work towards throughout their careers. While some make it, many don’t. The reasons for this include a lack of savings as well as lower-than-expected investment returns. Of course, the longer an investor has to save and invest for retirement, the better. But making a million by retirement could be possible for a range of people at different stages of their lives.
Savings are core
Of course, investing is not possible without saving money. Capital is required in order to generate investment returns of any kind. Clearly, working harder is one option, but assuming an individual is already working full-time, one way to increase saving is to spend more wisely. And with the onset of the internet, finding the best deals on a variety of goods and services has never been easier.
One example is the use of cashback websites. They provide an individual with a cash sum simply for registering and clicking on a link before purchasing a product from a specific retailer. Another example is price comparison websites where it’s possible to reduce utility bills, insurance costs and a number of other regular costs. By reducing recurring costs by even a small percentage, it could free up capital that could be used to invest in shares.
Perhaps the biggest mistake that investors make when buying and selling shares is that they do it too often. Patience is a difficult asset to acquire for any investor, but the reality is that trading less frequently reduces commission costs. It also means the companies held by an investor have the time to come good. Changing strategies, favourable market conditions and low valuations can take many years to filter through into a higher share price. As such, buying-and-holding for the long run seems to be a shrewd move for investors seeking to make a million.
Making a million may not require a high-risk strategy due to the potential impact of compounding on returns. Therefore, while buying a range of smaller companies or stocks in specific, high-growth industries such as resources may be alluring, it may not lead to high overall returns in the long run.
In fact, buying companies with solid fundamentals and that pay a high, rising dividend could be a worthwhile approach. In time, such companies could post total returns in the high single-digits per annum, and this may create significant returns in the long run. And with the potential to buy shares in any major index now being available to all investors with access to the internet, the opportunities to pick the very best stocks in the world are more exciting than ever.
While making a million is never easy, by focusing on being a disciplined investor it is possible to reach a seven-figure goal. Saving money is rarely as fun as spending it, holding shares is less exciting than trading them and focusing on dividends over an enticing ‘story’ is not how most people would choose to invest. However, those areas are probably what makes the biggest difference to your chances of making a million by retirement.
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