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A number of individuals have amassed substantial wealth in the equity market, with some even attaining billionaire status through stock ownership. Hence, I perceive striving for a million through stock investments as a pragmatic ambition.
However, what approach should I adopt to achieve this?
committing substantial capital
If I am earnest in my desire to aim for a million, I need to be ready to seriously generate income.
Fantasizing that I could invest a few hundred pounds at the opportune moment in the likes of Amazon or Apple and eventually become a millionaire is more of a dream than a concrete strategy. While not entirely unattainable, the probability is exceedingly slim.
The extent of my investment hinges on my personal financial situation.
If I lack any savings to invest, I could establish a regular practice of setting aside funds on a weekly or monthly basis. To accomplish this, I would create a share-dealing account or Stocks and Shares ISA.
Which would be more advantageous in the long term: Diversifying my funds evenly across all stocks in the FTSE 100 or concentrating them on the five to 10 most promising ones?
Phrased this way, the answer appears evident.
Over time, directing a substantial sum into a multitude of high-performing stocks can yield significantly greater returns compared to distributing a small amount across a large number of stocks.
Reaching millionaire status in under two decades?
Consider this scenario: if I invest £100,000 in 100 stocks with a compound annual growth rate of 7%, and the equivalent sum in just 10 stocks with a compound annual growth rate of 14%, the former approach might make me a millionaire – after 35 years.
The latter approach, which focuses on 10 high-performing stocks, will expedite my goal of reaching a million in less than two decades.
The question then arises, using the present FTSE 100 as an example, how can I identify which stocks will emerge as the high-performers I seek?
Selecting the right stock to purchase
The truth is, there is no foolproof method to predict. Even stocks with promising prospects can disappoint, which is why my strategy involves diversification across five to 10 stocks rather than concentrating all my investment in a particular favorite.
However, I can leverage centuries of business data and analysis to identify the categories of stocks that consistently outperform over time.
For instance, are there essential services with enduring strong demand? Utilities like National Grid and severn trent seem poised to benefit from sustained customer demand for decades.
Another determinant of long-term success is whether a business possesses substantial competitive advantages that provide it with pricing power. Apple serves as an example: its product and service ecosystem incentivizes customers to purchase more Apple products.
I also consider valuation. Even the most remarkable business can turn out to be a poor investment if I overpay for it.
If I aspire to reach a million, I don’t believe I need to invest in numerous different businesses. Rather, I need to identify entities likely to deliver exceptional performance in the years to come!
The post How I’d Make Millions By Buying Just 10 Shares appeared first> on The Motley Fool UK.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Si Ruan holds no position in any stocks mentioned. The Motley Fool UK recommends Amazon and Apple. The views expressed regarding the companies mentioned in this article are those of the author and may vary from the official recommendations provided in our subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, we believe that considering a wide array of perspectives can elevate our proficiency as investors.
Motley Fool UK 2023