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Lots of people dream of making riches in the stock market. Yet for a variety of reasons, many of them never get anywhere close. A lot do not even put a penny in.
Yet, with the right approach and timeframe, the stock market can turn out to be a very lucrative place for some investors.
Here is how someone with no prior market experience could start investing this month — and aim for a million.
Setting realistic goals
To be clear, I am not talking here about putting £1,000 into the stock market and it magically turning into £1m in a matter of months. Such fantasies can be dangerous for investors, as they may lead them to take ridiculous risks that end up wiping out their investment.
Rather, I am thinking of an approach where someone regularly drip feeds money into the market. In this example that involves £1,000 each month from this May onwards. But each investor is different and could tailor the approach to suit their own financial circumstances.
Aiming for a superior return
What is a realistic expectation for what can be earned in the stock market? It is hard to beat the market. That is why many people do not try and instead stick to index-tracking funds. But it is possible.
By focusing on the quality of the companies and share price paid, taking a long-term approach and carefully managing risks, I think an investor could aim to outperform the wider market.
Imagine, for example, that they can achieve a compound annual growth rate of 10%, thanks to a mixture of share price growth and compounding their dividends.
Doing that, they could comfortably aim for a million within 24 years. Yes, that is a long time. But this is a serious investing plan, not some get-rich-quick scheme.
Part of what drives that return is minimising costs that eat into it. That is why it makes sense for an investor to compare different options for share-dealing accounts, trading apps and Stocks and Shares ISAs.
But the main driver of results will be the choice of shares someone makes (I use the plural because no matter how great one share may seem, diversification is always an important risk-management technique).
One share I think investors should consider is rental company Ashtead (LSE: AHT). It was a long-time star stock market performer, but has fallen 25% over the past year.
That puts it into what I would say is an attractive price range – and I have bought the FTSE 100 share myself.
A fall of 25% rarely happens for no reason. Ashtead is mostly focused on the US market. An uncertain economic outlook and changing public spending priorities could lead to less construction projects Stateside, hurting Ashtead’s revenues and profits.
But over the long run, I see construction equipment rental as a resilient business, albeit a cyclical one. Ashtead’s long success comes from its understanding of the space, extensive equipment holdings and large customer base. Those continue to strike me as strengths.
