The idea of becoming a stock market millionaire has a certain appeal. I also think it is possible, even from a standing start and with no savings.
But turning an ambitious goal like that into reality takes more than just positive thinking and optimism. It needs a realistic plan of action. I reckon I could use a Stocks and Shares ISA to aim for a million.
Here’s how.
Setting the right timeframe
To begin, note that this is a long-term goal. I would not expect to start with nothing and become a millionaire in a short time. Instead my timeline here is in decades.
What is the benefit of such a long-term approach to investing?
As I see it, it means I can do the work upfront of putting aside money and finding shares to buy. Then, if I choose the right shares, I can let time do the heavy lifting of turning my Stocks and Shares ISA into a portfolio of far higher value than the money I put in.
Investing with a long-term vision
Speaking of putting money in, how much would I invest? Everyone’s financial circumstances are different and any smart investment approach needs to reflect that. In this example, I imagine investing £850 each month.
To do that, I would set up a Stocks and Shares ISA – there are lots to choose from – then start putting my money into it regularly.
Ongoing target as I aim for a million
Talking about getting my ISA value up to seven figures is ambitious. Breaking that down into a smaller series of targets could help me focus.
To achieve that goal, what would I need to do? If I put in £850 each month and can grow my Stocks and Shares ISA at a compounded annual rate of 8%, it ought to be worth a million pounds after 28 years. As I said, this is a long-term plan. Becoming a millionaire takes time and effort.
Looking for shares to buy
So what sort of shares might let me achieve that average annual compound annual growth rate of 8%? I would spread my Stocks and Shares ISA over a few different choices, so that disappointing performance by one would have a limited effect on my overall performance.
The 8% could come from either growth, dividends (that I would reinvest) – or both. An example of a share I own that I hope could give me both is Reckitt (LSE: RKT).
It sells consumer goods, a market I expect to benefit from long-term customer demand. Thanks to its collection of premium brands such as Vanish, it is able to charge a higher price for its products than unbranded competitors. That is good for profits.
The company’s shares have performed weakly in recent years. In part that is due to a disastrous acquisition of a nutrition business and I see a risk that it will continue to dog Reckitt’s overall performance even though the company has slimmed it down considerably.
Still, I saw the share price weakness as a buying opportunity and hopefully will receive regular dividends while I own the shares — and aim for a million!
The post Here’s how I’d use a Stocks and Shares ISA to aim for a million appeared first on The Motley Fool UK.
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C Ruane has positions in Reckitt Benckiser Group Plc. The Motley Fool UK has recommended Reckitt Benckiser Group Plc. 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.
