February being the shortest month of the year is a reminder of how time can race by. Time can work against us in the stock market, as the shorter the timeframe we have, the harder it can be to benefit from a long-term approach to investing.
That is why, if I wanted to aim for a million by drip-feeding money into blue-chip shares, I would be happy to start in the coming month.
Becoming a stock market millionaire
There are different ways to aim for a million in life.
So why would my mind turn to the stock market as an approach?
For one thing, it does not require me to have a lot of capital to start. In fact I could begin with nothing in the bank and simply start putting aside money on a regular basis to invest.
Another thing I like is that the stock market (notably the FTSE 100) contains lots of large, well-established companies with proven business models. I could benefit from their hard work and commercial savvy.
That said, even in the FTSE 100 not all businesses will do well in future. On top of that, if a valuation is too high, even a successful company can make for an unsuccessful investment. So I always research carefully before buying shares.
Doing the maths
Imagine I have a 30-year timeframe and am able to put £500 each month into my Stocks and Shares ISA as I aim for a million.
Rather than taking out the dividends as cash, I would reinvest them. That is known as compounding and can be a secret weapon to help increase returns for the long-term investor.
If I am able to generate a compound annual gain of 10% as I aim for a million, then by the end of 30 years I would have hit my goal.
Choosing shares to buy
A compound annual gain of 10% is harder than it may sound. Achieving a 10% return over a year is one thing, but doing that on average every year for three decades is another.
Take Vodafone (LSE: VOD) as an example. The telecoms giant currently offers a yield of 11.1%. So it might seem that I could hit my target just by buying Vodafone shares, even without compounding.
But I would never put my whole ISA into one share. No dividend is guaranteed. Vodafone has cut its payout in the past. It could do so again, as a series of asset sales mean it is set to see revenues fall.
Then again, with its strong brand, large customer base, and strong position in many markets, it is possible that the company will maintain its current dividend. That helps explain why I own it in my ISA — but only as one of a number of companies.
To aim for a million, I would keep things simple. I would build a diversified portfolio of five to 10 blue-chip shares I thought offered me the chance to buy into great, enduring businesses at an attractive valuation. Hopefully, choosing the right shares to buy could put me on the road to being a stock market millionaire.
