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Aiming for 1 million shares with just 10 shares

by xyonent
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Image credit: The Motley Fool

The idea of ​​becoming a stock market millionaire sounds pretty appealing to me, and I think it’s realistic to start from zero and aim for $1 million with just three steps.

1. Invest money regularly

To go from zero to becoming a millionaire, you still need money, so even if you start with nothing, make sure you save money regularly.

To achieve this I would set up a share trading account or a Stocks and Shares ISA.

Then save regularly, within your means, enough to reach your £1 million goal. Everyone’s situation is different, but for this example we’ll say £980 per month.

2. Build wealth for the long term

The next move sounds simple, but it’s extremely important: think long term. Specifically, adopt a long term approach to investing.

Whether my goal is to become a millionaire by identifying great companies early on or by accumulating dividends from established companies, I want to invest in great businesses.

It usually takes time for that greatness to fully manifest itself in the form of rising stock prices, generous dividends, or both.

3. Aiming for the gold medal

The third key element of my approach is to buy shares in a small number of companies — I don’t think more than 10 companies is enough.

That may seem odd. After all, many people hope that by spreading their money widely, they’ll find some stocks that will really perform well. That may be the case, but it may only be a small portion of their portfolio, and they may be very thinly diversified.

I think it’s better to buy just a few great stocks than to invest in a lot of decent or blue chip stocks.

For example, investing £980 per month in 50 shares with a compound annual growth rate of 10% should see your portfolio value reach £1 million in 24 years.

But imagine if the top 10 stocks in that collection grew at 20% annually. By investing only in those stocks, my plan to make $1 million would be realized in 16 years.

Find stocks to buy

Of course, without foresight, it can be hard to know which stocks will perform great or just pretty well.

But I believe it is possible to make wise decisions. For example, billionaire investor Warren Buffett: apple (NASDAQ: AAPL) was around until about a decade ago, when it was already well established and had been trading on the stock market for decades. iPhone It’s been around for about 10 years.

But the investment paid off, and it’s now Buffett’s largest holding: Over the past five years, Apple’s stock has risen 334%, well above a 20% compound annual growth rate, not even taking into account dividends.

But that doesn’t mean Apple will continue to thrive: The company faces stiff competition and risks weakening demand for its expensive electronics in a tough economy.

But the principles that guided Buffett to Apple — strong competitive advantages, a large market, pricing power, and an attractive valuation — may help him find a few stocks that have the potential to perform well over the next few years.

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