Could 2025 be the year to aim for a million?
It could at least be the year an investor starts aiming for a million, even though the process itself could stretch over quite a few years. In my case, for example, I will use 2025 to keep building towards the goal of becoming a stock market millionaire.
That is possible even by investing a few hundred pounds each month on a regular basis, if an investor is willing to adopt a long-term approach to investing.
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It does not even necessarily involve buying loads of little-known shares. In fact, my own approach involves sticking to just a few large, proven blue-chip companies.
Regular contributions on the road to a million
If an investor invested, say, £100 each week, that would give them a growing pot of money to put to work in the stock market. Over time, thanks to ongoing regular contributions and hopefully also growth in the portfolio value, that pile of money will increase.
Such growth could come about from share price growth, dividends, or a combination of both. Taken together, the level of such growth helps determine how a portfolio grows (or not – share prices can fall as well as rise).
For example, investing £100 each week and achieving a compound annual growth rate (CAGR) of 5%, a portfolio ought to be worth a million pounds after 48 years. But a CAGR of 10% would cut that to 31 years.
Investing £100 per week and achieving a CAGR of 20%, I could realistically aim for a million in under two decades!
This year I plan to keep investing regularly at a level matched to my own financial circumstances. To do that, I have chosen what I think suits my own objectives and situation best from the wide range of share-dealing accounts and Stocks and Shares ISAs available.
Finding outstanding shares to buy
But how realistic is a 20% CAGR over decades?
The answer is, for many investors, not very.
Warren Buffett has performed at that level and reckons he could improve his performance if putting smaller sums of money to work than the vast funds he now at his disposal.
For most of us, though, 20% is a very tough target.
That said, as I aim for a million, I think one simple way to try and increase my average performance is by ignoring what I see as good opportunities, to focus only on what I think are great ones. Last year saw the FTSE 100 rise 6%. But member IAG soared 94%.
Brilliant! But can IAG perform over the long run at anywhere like that sort of level?
I have my doubts, which explain why I have no plans to invest in the owner of British Airways.
On one hand, it benefits from strong brands, an entrenched position at Heathrow, and also the bottom line benefits of years of cost-cutting.
But over five years, the IAG share price has fallen 35% — and the dividend yield is under 1%.
The company suffers from operating in an industry that experiences sporadic demand shocks that are often unpredictable. I think IAG’s cost-cutting also risks hurting passenger loyalty.
As I aim for a million, I will look for just a few brilliant shares to buy. I think I need to keep looking!
