Making a million pounds is the dream of so many of us. However, few of us realise we have the potential to make that dream come true through stock market investing.
The stock market is not the sole preserve of the wealthy and it is open for anyone to access.
In fact, many millionaires have emerged from depressed financial times. Some of the world’s most successful investors follow the value investing strategy. This involves buying quality companies for a cheap share price, holding them for several years and enjoying wealth generation through the compounding effect of reinvesting dividends.
John Maynard Keynes and J Paul Getty, two rich and successful investors, followed this strategy. Perhaps best known of all is Warren Buffett, who has spent close to 70 years investing in this way and has personal wealth close to $70bn.
Making a million
Getting on the path to riches is easier than it may seem. Provided you follow a few simple rules and have confidence in your conviction. The stock market can pave the way to a wealthy future.
Commit to regular investment
Regularly investing increases your bottom line. Implementing a regular direct debit for your Stocks and Shares ISA is a simple way to set it and forget it. A consistent amount invested can help even out the highs and lows of investing. During a period of volatility, when stock markets are at low point, your regular investment can buy more shares for your money, this can boost your long-term returns when the markets recover.
Choose companies with a reliable dividend
Dividends are fast falling by the wayside at the moment, but a regular income from a dividend can work wonders in securing a million-pound payday. By reinvesting your dividend payments, you compound the interest on your shareholding. This increases your wealth at a much faster rate than simply buying new shares as and when you can afford it.
Choose companies that can go the distance
Invest your money in companies that have a good reputation, many years of experience and proven management with the company’s best interests at heart. When you opt for a well-established company with a sound track record, you reduce your risk.
Diversify your portfolio
Don’t put all your eggs in one basket because you expose yourself to unnecessary risk. If you only buy oil stocks and there is a downturn in the oil industry, then your portfolio will drop across the board. There are many sectors to choose from, so you should endeavour to own equities in a selection of them. Defence, pharmaceuticals, fast moving consumer goods (FMCG) and insurance are some examples.
Have a plan, stick to it and be confident in the decisions you make. Over the long term, stocks and shares can put your money to work much more efficiently than traditional savings accounts.
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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.