Why do you want to spend your money on investing? What do you really expect to gain?
The ultimate goal of investing is making money – pure and simple.
My oldest son turned 24 and he's living and working on his own now. I have told him about investing and even showed him how I did it, but could he create a $1 million portfolio someday? Yes. Definitely!
The first step in creating the ultimate $1 million portfolio is realising that you can't do it by simply saving your money. You have to invest it over long-term horizons. When we say "long-term investing", we really mean 20, 30 years and more – ultimately, for the rest of your life.
Step two: you need to dedicate a portion of your income to investing when you get paid. Don't try to save whatever is "left over" at the end of the month. That's a loser's game. Investing gets the first cut. For example, $300 a month off the top – every month.
Step three: invest in stocks that can give you a steady, reliable return over many years through dividends and share price growth. Wesfarmers Ltd (ASX: WES) is one example. The operator of Coles supermarkets, Bunnings Warehouse, Target and Kmart pays a 4.4% fully franked yield, so if the stock grows even a low 5% a year, that's over a 9% return annually. After expenses, maybe you get 8%.
Step four: repeat steps #2 and #3 until you retire. All your dividends and any gains go back into more investing to snowball into a $1 million portfolio over the next 40 years. Wesfarmers will probably be in business for decades to come, but you could also pick well-established companies like Westpac Banking Corp (ASX: WBC) or biopharmaceutical CSL Limited (ASX: CSL). Dividend payments will grow as well.
Okay, if my 24-year-old son does the steps, what could he expect to have?
For investing $300 a month compounded monthly at an annual 8% rate for 40 years until he is 64, he could have a portfolio worth $1,047,300. Wow! My son – the millionaire!
