It might seem far-fetched, but it’s possible to turn a relatively modest sum like £20k into a share portfolio worth £1m.
I know it’s possible because investors like Mark Minervini, Lord John Lee, Warren Buffett and many others have all invested their way from a few thousand to millions, and even billions in some cases. And they’ve done it well within the span of their working lifetimes.
Aiming to make a million with shares
The old adage is true in the stock market that ‘it takes money to make money’. But it doesn’t take a lot of it. However, I reckon it does take a few things to get great performance from investments.
Perhaps the most important factor is hard work. If I think of the process of investing as a hobby or a passive activity, I will be unlikely to achieve outperformance with my investments.
However, passive investing is a great way to approach shares if my life’s too busy to put much time into investing activities. Indeed, decent long-term returns can result from buying tracker funds, managed funds and investment trusts. Or, for example, by pursuing a strategy of dividend investing by targeting high-yielding big-caps.
And the process of compounding will help my investments grow over time, even with a laid-back attitude to investments, as I’ve described.
But to really get my portfolio motoring I need to target higher returns. Indeed, compounding accelerates if the annualised average return increases. For example, compounding an annualised 7% return a year will produce a decent long-term outcome. But compounding, say, 20% a year or more will produce a superior result. And the overall balance of my account will grow much faster.
Picking and refining a strategy
Many investing strategies can be successful. But my preferred method for achieving higher annualised returns is to target businesses with growth potential. And my portfolio then needs the underlying operations to achieve that potential. Or the stock could factor the potential into the share price – which usually means the stock goes up.
And that’s where the hard work comes in. Firstly, it’s important to learn all about how to analyse stocks and their underlying businesses. Then to finetune an investment strategy that helps me pick the best opportunities at the right time. Often, that process involves looking at both qualitative and quantitative factors.
But even then, working out when to buy a share is only half the battle. It’s just as important to know when to sell. Maybe I’d sell to take some profits. Or to cut a loss. Perhaps I’d sell because the ‘story’ has changed. Or to rebalance my portfolio. Perhaps I’d sell because the business has become over-valued. Whatever the reason, it’s important for me to develop and refine a set of rules and a strategy for selling stocks.
Opportunities arrive in the stock market nearly every day it’s open. And if I work hard at finding them and executing my strategy, I’m certain that £20k could make me a million over time.