Like a lot of people, the idea of being a millionaire appeals to me. One way I could aim for a million is by investing money over time and building a shares portfolio.
It might seem like the obvious way to do that would be to invest in dozens and dozens of different companies and hope that some of them do very well. That is more or less the strategy of Scottish Mortgage Investment Trust — admittedly with a lot of research and analysis along the way. Over the past five years, its shares are up 55%. That is impressive, but I would have need to have invested nearly £650,000 in the shares five years ago to become a millionaire.
So, what do I think I could do differently on my own? After all, Scottish Mortgage has professional fund managers and invested in some companies like Tesla well before they became popular.
Going for great
While Scottish Mortgage has done pretty well over the past five years, Tesla itself has done far better. In that timeframe, the Tesla share price has soared 878%. If I had put £115,000 into Tesla shares five years ago, I would now be a millionaire.
I think if one seriously plans to aim for a million, it is necessary to invest a substantial amount of money. In this example, £115,000 would have been enough.
What if I did not have that sort of money – or none at all? I could still aim for a million by building up my investment fund over time, contributing on a regular basis to a share-dealing account or Stocks and Shares ISA. With the annual contribution deadline for ISAs coming up next week, now is actually the perfect time for me to put some money into an ISA.
Diversification – up to a point
In reality, if I had £115,000 to invest five years ago, I would not have put it all into Tesla or indeed any other single share. While Tesla has done very well, such performance is never guaranteed, no matter how promising a share seems.
So I diversify my investments between a number of shares.
But here is the thing. I would like to aim for the sort of returns seen from Tesla over the past five years rather than those of the diversified Scottish Mortgage trust, which numbers Tesla among its holdings. Yet I also want to be diversified. How could I achieve that?
My approach would be to buy just a few stocks (between five and 10 would be ideal for my purposes), versus the dozens and dozens owned by Scottish Mortgage. I would try to focus on picking what I thought were likely to be the biggest winners.
Of course, it is impossible to know which shares will do best (otherwise probably all investors would buy them). But I already narrow down the stock market to the shares I think have potential. I am simply adding another step to that process, as I try to zoom in on my very strongest investment ideas.
Rather than water down my results by filling my portfolio with just ‘okay’ stocks, I think I could seriously aim for a million by keeping a firm focus on finding the ‘best of the best’.
