There’s a balance to be had when building a portfolio. Just holding a couple of stocks makes an investor overexposed to something bad happening with one of the companies. Yet if they buy a tracker that holds 100 stocks, they are unlikely to feel the benefit if one outperforms. Here’s how I feel an investor starting from scratch could aim for a million with a small but balanced portfolio.
Focusing on growth
This isn’t going to be one of those get-rich-quick schemes. We all know that these don’t exist without a very high level of risk. Yet there are plenty of examples of UK investors that grew their pot over a few decades to be worth a million. Therefore, the first goal is to set the right parameters.
I’d suggest investing a regular amount each month and ideally look to use an ISA to house the stocks. This is because any gains made on the shares or dividends received would be exempt from tax.
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I’d suggest investors in this scenario ought to consider high-growth shares only. I feel they should look to pick from sectors that they believe stand to gain the most over the next two decades. From the eight, a good split could be four that are already established growth names, with the other four being smaller companies that one thinks have the potential to become much larger.
A stock I like
I recently bought Tesla (NASDAQ:TSLA) shares and think investors could consider the same when choosing their eight picks. Even though this is a classic growth stock, I think that it has scope to keep growing in the coming years.
The business is pivoting from just being an electric vehicle (EV) manufacturer to going into driverless cars and robotics. I don’t even think we have reached peak EV usage yet. So looking forward, I see demand growing in that area alongside other areas (such as robotics).
The new US President has stated that he’ll likely bring in tariffs on Chinese imports. This should make Tesla more competitive in the domestic market. The stock is up 50% over the past year, but has gained over 35% in just the period since the election result. I think this is very telling for how investors feel the business could perform.
One risk to potentially buying this stock now is the likely cut to EV subsidies that’s coming in the new year. President-elect Trump is expected to remove the £6k tax credit for EV purchases, which could lower demand for Tesla.
How an investor could get to £1m
For this scenario, I’m going to assume that someone can afford to invest £1.5k a month and build up exposure to the eight favourite stocks. I’ll use an average growth rate of 10% for the portfolio. I’m not saying that this will be 10% every year. Some years could see the stocks fall, yet other years will be great (i.e the 50% Tesla gain). But over the next two decades, I feel 10% is a fair estimated figure.
If this was kept this up for 19 years, an investor could in theory hit the magical million pound mark!
This post was originally published on Motley Fool
