I am aiming to make £1m with UK shares. I know this is an ambitious target, but I believe it is possible with a long-term mentality and strict savings plan.
I will admit it is not going to be easy. And it will require me to follow that rigorous savings plan for more than a decade.
The ability for me to stick to this plan will depend on many factors, including life events and employment. There will always be a risk that I will miss my target and, if I do, the whole strategy could fall apart.
But, at the moment, I believe the following strategy will help me build a substantial investment account in the years to come.
According to my figures, the UK stock market, on the whole, has produced an average annual return of around 8% over the past couple of decades. Past performance should never be used as a guide to future potential, so I realise I may not be able to achieve this sort of return year after year.
However, by focusing on high-quality stocks, growth equities and investment funds that concentrate on finding undervalued investments, I believe I can improve my odds of earning a high return.
And assuming I can earn a return of 8% a year with UK shares, I estimate I could build a £1m fortune within 26 years, by saving £1,000 a month.
Picking UK shares
As I noted above, the most crucial part of this strategy will be picking suitable investments. I cannot guarantee the investments I chose will earn a high return. Still, I can focus on the companies that have the most potential.
These are ones I believe have the most attractive profit margins and substantial competitive advantages. Two examples are the consumer goods giant Reckitt and the miniatures producer Games Workshop.
To help increase my chances of earning a high return, I would also invest some of my money in specialist growth funds.
Two funds I would add to my portfolio are Fidelity Special Situations and AXA WF Framlington UK.
The downside of this approach is that I will have to pay management fees. These two funds charge around 0.85% per annum. These charges are not applicable when investing in single stocks (although I will have to pay other commission fees). The addition of management charges will reduce the returns I earn from these funds in the long run.
Nevertheless, despite the drawbacks of the investment approach I plan to use, I think it can help me achieve my £1m target over the next two-and-a-half decades. Nothing is guaranteed, of course. But assuming I do not have to deal with any unforeseen life events during this time frame, I believe the strategy has tremendous potential.