It’s possible for ordinary people to make a million pounds from investing in stocks and shares. So what’s the secret? It all boils down to a single word. But first, I’ll tell you how you won’t achieve it.
You almost certainly won’t make a million pounds by investing in some hot new whizzy start-up with a ground-breaking new product or service the world is crying out for.
This get-rich-quick fallacy has led too many newbie investors astray. If you bought a chunk of Amazon or Apple stock at a very early stage, you could certainly have made a million pounds from shares. Few did though. The chances of failure are too high.
The stock market can make you rich, but…
At any point, there are thousands of early-stage companies pitching to be the next global titan, but most will never come close. So please don’t rely on making a million from a single lucky shot.
Similarly, don’t rely on your genius-like stock picking skills to thrash the market. I had a friend who had a great plan. He took all his savings, £10,000, and put it in a single growth stock he thought would outperform. His strategy was to wait until that had risen 50%, then shift his money into another top growth prospect, sell after that climbed 50%, and buy another…
He never made a million pounds. Or came close. Nobody can guarantee any stock pick will climb 50%, let alone do it repeatedly.
The best way to make a million on the stock market is to buy a balanced portfolio of shares, mostly FTSE 100 stocks, and keep adding to them whenever you have money to spare. That way if one underperforms, you won’t be completely knocked off course. Use your Stocks and Shares ISA allowance for tax-free returns.
If the stock market crashes, don’t sell. Anybody who did that in March will be kicking themselves today. Instead, take the opportunity to buy more shares at reduced prices.
This is how I’d make a million pounds
Given current uncertainties, I’d focus on top FTSE 100 companies with strong balance sheets, steady cash flows, manageable debts, and loyal customers. Ideally, they’d pay dividends as well, which I’d reinvest for growth. Then I’d hold them for the long term, giving time for markets to recover.
That’s the key word here – time. You can make a million pounds on the stock market, but you won’t do it overnight.
If you invest £400 a month and get a total return (including reinvested dividends) of 7% a year, you’ll have a million pounds. It will take you 40 years though. The more you invest, the quicker you can get there.
To make a million, you have to work hard and be patient. The effort will be worth it. Even if you don’t make that target, you’ll end up a lot richer than if you’d done nothing at all.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.