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Image source: Motley Fool
All investors have dreams of becoming a stock market millionaire, right? We take the time and effort to carefully research UK stocks and come up with investment strategies to create life-changing wealth.
For many it sounds like a pipe dream. But making huge fortunes is within reach of everyday investors like me. The hundreds of stocks and shares ISA millionaires who have emerged over the past decade show how this is possible.
Keeping things simple can be an important part of a winning investment strategy. I think investing in just 10 UK shares could help me build a stock portfolio that could reach £1m!
Compounding miracles
It is possible to build substantial wealth through share investing thanks to the miracle of compounding. Essentially this means reinvesting all the dividends I get from buying my shares. This way I can make money on the original investment as well on the dividend received by me.
Let me show you how this miracle can make me a stock market millionaire. If I invested £150,000 in UK shares and it compounded at an average annual rate of 10% I would, after 20 years, make a whopping £1,009,125.
I realize that very few of us have £150,000 to invest straight off the bat. But the beauty of compounding is that even those who regularly invest small amounts can become seriously rich.
Let’s say an investor has £500 to invest every month. It will take them longer to hit that magical million marker based on that 10% annual return. But they will still hit the target in just three decades.
Modern advantages
These calculations, of course, assume that average returns of 10% over the past 10 years will continue. However, such returns can never be guaranteed with stock investments. Market can go down as well as up. And just one poor investment decision can cause massive losses to my entire portfolio.
Modern investors, however, have a significant advantage over previous generations. Company reports, analyst notes, stock tips and the latest economic and business news are all available at the click of a mouse.
Living in the Internet age is a huge advantage that can help investors generate market-beating returns. One particularly useful tool I like to use is gathering information about what the world’s most successful investors are doing.
Think like Buffett
Billionaire Warren Buffett is someone whose investment strategy I follow closely. The wonders of the internet mean I can see what’s up Berkshire Hathaway Investments in firms are made in seconds. This is something I like to consider when I decide what to buy for my own share portfolio.
One key thing I’ve noticed is that Buffett doesn’t invest large sums of money in a large number of stocks. In fact Berkshire Hathaway currently has 87.19% of its stock portfolio invested in just 10 companies. Apple And Coca Cola.
Owning 10 UK stocks can allow me to diversify my portfolio without having to spend time researching hundreds of stocks. And as Warren Buffett has proven, it can set me on a path to building significant long-term wealth.
It can also help me become a stock market millionaire.
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