What is a realistic way for someone to aim for a million in the stock market?
The answer largely depends on what they are starting with.
Aiming for a portfolio to reach a £1m valuation if it already has £700,000 in it is very different to if it contains, say, just £700.
Both could be possible – but may have dramatically different timelines. Still, whatever the starting point, some common principles can apply if an investor seriously wants to aim for a million.
Moving the needle
One issue is how to decide the allocation between growth and income shares.
Income shares can be great for building wealth over time by compounding dividends. But clearly, the starting point matters.
For example, say an investor can compound at 6.2% annually (already double the current FTSE 100 yield). Starting with £700k, they could then realistically aim for a million after six years.
With just £700 as a starting point, it is still possible – but without any further capital contributions, would take 121 years.
By that point, incidentally, the steady 6.2% annual increase would have turned the £700k into a portfolio worth over £1bn: compounding over the long term really can deliver phenomenal results.
This is where growth shares can help.
Since listing 16 years ago, Tesla is up 31,188%. An investment of just over £3,200 then would now be worth a million pounds (excluding currency rate movements). The right growth shares can really move the needle!
What about SpaceX?
That brings me to the recent listing of Space Exploration Technologies (NASDAQ: SPCX), known as SpaceX.
Given that Elon Musk is central to both companies, some investors are wondering if this could be the ‘next Tesla’.
So could it? Whether investing just a few hundred pounds or hundreds of thousands to aim for a million, diversification always matters. One company can play an outsized role (by far) in returns. But lots of shares disappoint so it is always important to stay diversified.
SpaceX already commands a market capitalisation of $2.4trn. So a Tesla-style 31,188% gain in stock price over the next 16 years implies a 2042 market cap for SpaceX of $750trn.
That to me seems simply fantastic – but I would have said the same about Tesla’s current market cap 16 years ago!
Taking a consistent approach to investing
Aiming for a million is already ambitious.
When I look at SpaceX I think its huge ambition poses large risks. It will be expensive to fund and lots of things can go wrong along the way, from costly spacecraft explosions to rivals undercutting its Starlink Internet pricing.
But maybe big ambition — like aiming for a million — needs big ambition.
Given the risks, I think SpaceX’s stock price is too high, so will not be investing. But it does have some attractive features as a business, from its large target market and talented team to proprietary technology and strong growth prospects.
Those are some of the things I think can be helpful when looking for growth shares that could potentially deliver exponential returns. That can help if the goal is to aim for a million!
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Christopher Ruane does not hold any positions in the companies mentioned.
