Ever wondered how to become a millionaire?
Well, stop wondering and start acting would be my advice!
Consider this…
Starting with just $10,000 invested in shares and armed with a rigorous savings plan, over a 30-year time frame you have a very good chance of becoming a millionaire.
Let's assume through a diligent savings regime you are able to save $100 a week. This equates to $5,200 in additional shares that you can acquire for your portfolio each year.
Let's also assume you can achieve a compound return on your investments of 10% per annum. That may sound like a lot – and compared with interest earned on a bank deposit it is – but for many investors it remains an achievable rate of rate of return.
The magic of compound interest is another key ingredient to our plan. This "magic" has the greatest effect the longer it can run – so let's give ourselves 30 years.
The strategy, as outlined above, means in total we save $166,000 over 30 years to invest into our share portfolio. Through the beauty of compounding via the reinvestment of dividends and the reinvestment of any realised capital gains, our wealth will expand by a further $863,863!
Ultimately, after just 30 years, implementing the above strategy would grow your share portfolio to $1,029,863!
Picking stocks that will give you a long-term 10% per annum (pa) return isn't easy of course. One only needs to review the 10-year track record of most ASX listed investment companies (LIC) to see just what a hurdle it is.
For example, here are the total shareholder returns (TSR) achieved by two of the best performing LICs over the past decade.
- WAM Capital Limited (ASX: WAM) – TSR of 9.6% pa
- Australian Leaders Fund Limited (ASX: ALF) – TSR of 12.3% pa
So, with careful selection you could identify a fund manager who can get you a result close to 10% pa. Alternatively, clever stock picking could get you there.
For example, the following two widely-owned companies have managed to produce double-digit TSR over the past 10 years.
