Making a million can sound like a daunting task. This is especially so when we are just starting out on our investing journey. Just the idea seems implausible. But it is not. It does require patience, discipline, and careful selection though. Let me give an example. If I could target an annual saving of £10,000, that would be a good place to start. Here is how I would go about making a million from it by investing in the stock markets.
What is the annual target return for my investments?
First, I would consider an achievable return on my investments. This could be in the form of capital gains or dividends or both. My annual target goal would be a return of 10%. There are FTSE 100 stocks around today that offer this much just in dividend yield. Moreover, they are likely to give me capital gains as well.
So, I would target stocks that are likely to give me at least 10% gains. To this end, I would consider solid FTSE 100 defensive companies that are financially healthy, capable of bouncing back quickly during bad times, and that have a history of growing investors’ capital. In today’s market there are multiple such stocks around. And if I had started with this goal in 2021, chances are that I would have overachieved in a good year like this one.
When would I become a millionaire?
The first year of investing would give me both some experience and a better idea on where to put my money. If I am confident of making either the same or higher returns in the next year as well, I would keep the initial investments untouched. As mentioned above, I would invest another £10,000 for the next year. The initial criteria of stock selection would apply to these investments as well. I would try my best to ensure that these too earn at least 10% returns.
If I continue with this exercise, in year 26, I will be a millionaire. And if the stock markets are bullish in more years than not, then chances are that it could even happen sooner. In 20 years, I could earn £500,000. And this is just by targeting 10% returns.
Points to note
Of course, I need to be aware that not every year is going to be a good one for the stock markets. Last year, for instance, was a disaster. And returns on some of my earlier investments looked awful. However, much like there will be some bad years, there will be great years when my outcomes overshoot my targets.
It would require active watching over the investments, however. If for instance, a stock has been lucrative for me so far, but I do not foresee that it will continue to do so next year, it would be a good idea to reassess whether I would like to keep my funds in it. But chances are that if I choose carefully, many of my stocks would be long-term winners.