10 steps to making a million from shares
Filed under: Investing
It must be the ambition of me, you and every other ordinary investor reading the Fool -- to make a million from shares.
Just think. A £1m portfolio could mean...
...no more work,
...no more worries,
...and the financial freedom us Fools have always dreamt of.
I don't know about you, but I'd love to own a £1m portfolio, put my feet up every day... and simply live off the dividends.
Adopting the correct mindset
But I know reaching that magic million won't be easy. I've recognised I must adopt a hard-work mindset to compounding my existing portfolio into seven figures. So I'm certainly going to follow this advice:
- Trim my current expenditure, remembering that a penny saved is a penny earned -- and that such savings can also be invested over time and can count towards my million;
- Fund my investment contributions by automatic direct debit, so I'm not tempted to blow my surplus cash, and;
- Commit to those regular payments for the long term, so there's no giving up when the markets undergo a bad patch (as they always do these days).
I'll also continue to take advantage of tax-efficient ISAs, in which my share portfolio can grow free of capital-gains tax (CGT). CGT is charged at up to 28%, and made me think that one day I could avoid a hefty tax bill by using ISAs... if my shares ever grow at a very significant pace of course!
Top ten multibaggers
Talking of 'significant pace', I know that I'll need to pick some exceptional winners to stand a good chance of scoring a million from shares. Indeed, the 10 Steps report lists Anglesey Mining, Antofagasta (LSE: ANTO), Rangold Resources and Tullow Oil as among the 'top ten multibaggers of the last ten years'.
Those four stocks have each apparently produced 28%-plus annual returns since late 2001, which I must admit does confirm the potential for handsome gains if the last tricky decade for shares extends well into the next decade. Certainly if you pumped large sums into Anglesey, Antofagasta and so on ten years ago, that magic million might not be that far away now.
Less obvious winners
What I found more interesting in the 10 Steps report, though, was how some less obvious companies have earned loyal investors fantastic profits over time. In fact, I was amazed to discover that dull names such as bus group Stagecoach and fizzy-drink firm AG Barr have produced 18% annual gains since 2001.
Indeed, blue chips such as BHP Billiton, British American Tobacco (LSE: BATS) and Rolls-Royce (LSE: RR) have also provided similar annual gains, which underlines how obtaining super-profits from shares -- and ultimately building a £1m portfolio -- does not always have to rely on unfamiliar names or small-cap mineral plays. I must say I'm relieved about that.
The true power of dividends
Like you perhaps, I've read plenty of articles over the years explaining how company payouts have generated the bulk of long-term market returns. However, it's not until you see the real figures for a familiar share that this vital message is really brought home.
The shares of British American Tobacco have recorded a 412% gain during the last ten years. Not bad. But had you reinvested all the dividends collected on the way, the total return would have swelled to 725% -- and turbo-charged an 18% annual average gain into a stunning 23% average annual return.
To underscore the difference reinvested dividends could make on the path to a million, I worked out that if I invested £10,680 in an ISA and then enjoy BAT's 412% capital gain -- but spend all the dividends I receive -- I'd see my money grow to about £54,000.
However, if I invested £10,680 and then sit back to enjoy BAT's total, dividend-reinvested 720% return, my pot would surge to more than £87,000.
For me at least, that extra potential £33,000 could certainly make all the difference in achieving a landmark £1m portfolio!
Though I've only covered a fraction of what 10 Steps To Making A Million In The Market has to offer, the full report has really given me extra inspiration to compound my own small portfolio towards the £1m mark.
That may take some time to achieve of course, but if I invest all my spare cash, shelter my shares from tax within ISAs... and of course, relentlessly hunt down attractive buying opportunities, then maybe one day I can enjoy that seven-figure sum... and put my feet up!
Let me add finally that I ordered my copy of 10 Steps just by reading an article on www.fool.co.uk and I received it by e-mail straightaway. I can also confirm the report was entirely free, came without any further obligation and contained masses of other stats and information that I'm sure you'll find useful. I hope you enjoy the report as much as I did.
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