Making a million from a strategy to invest £1k a month in shares may sound somewhat unlikely at the present time. After all, the stock market crash occurred only a handful of months ago. Furthermore, the economic outlook remains precarious. And this could mean investor sentiment weakens in the short run.
However, the stock market’s past performance shows it’s delivered high single-digit annual returns over previous years. Through building a portfolio of the best shares while they trade at cheap prices, it’s possible to build a seven-figure portfolio over the long run.
Invest £1k a month in the best shares at cheap prices
A strategy to invest £1k a month in shares may be capable of generating higher returns than the stock market through focusing on the most attractive businesses. They’re likely to include those companies that have long-term growth potential. For example, they may operate in a sector that’s likely to benefit from growth trends. This could be through the continuing switch to digital operations, or the use of new technology.
Clearly, such companies may face challenging operating conditions in the short run due to a weak economic outlook. However, this could present an opportunity for an investor to buy them at cheap prices. In doing so, they may be able to purchase them at a discount to their intrinsic value. This may enable them to generate impressive total returns. Ones that outperform indexes such as the FTSE 100 and FTSE 250 over the coming years.
Investing money in high-quality shares
Of course, not all companies with strong long-term growth prospects will necessarily be around to benefit from them. Therefore, it’s crucial for an investor to ensure they invest £1k a month, or any other amount, in stocks that have solid fundamentals. For example, those companies that have manageable debt levels, a clear and sustainable competitive advantage over their peers, and low valuations relative to their sector rivals.
Furthermore, diversifying across a wide range of attractive shares is likely to be a logical move. Even the very best shares may face unforeseen problems that lead to disappointing returns. Having a range of companies within a portfolio reduces the impact of poor performers.
Making a million from a regular investment in shares
Even if an investor obtains the same return as the stock market, they could generate a £1m portfolio over the long run. For example, the FTSE 250 has produced annual total returns of around 8% over the past 20 years. If an individual decides to invest £1k a month at an 8% return over a period of 25 years, they would accumulate a portfolio valued at around a million.
However, by focusing on the best companies when they trade at low prices, it may be possible to make higher returns. In doing so, a £1m portfolio could be achieved in a shorter timescale.
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.