How to build a $1m portfolio
It’s an exciting prospect isn’t it? Sitting down and being able to plan out how you’d go about building a $1m share portfolio.
When I think about how to do it, I realise I need to consider all the various components of compound growth.
These are:
Time
Growth rate
Initial investment amount
Periodic investment amount
Over time, I’ve realised all of the above how some part to play in building a portfolio of any size.
I’ve found the easiest way to go about planning these are is to use online calculators that let you simulate different scenarios.
My favourite is the Compound Growth Calculator by Moneysmart.gov.au (Australian Government website). Even though it’s technically used for compound interest calculations - it can be used for compound growth because the maths is the same if you consider all your “growth” in the form of capital and dividend is reinvested into your portfolio.
Basic example: 30 years, start with $0, growth rate 5%, invest $1,500 per month
So this strategy will build a $1.2m portfolio at the end of the 30 years. It’s a longterm one because I know most people don’t want to wait 30 years. It might be something you could do with your superannuation.
Parameters:
Initial amount = $0
Growth rate = 5%
Monthly investment = $1,500
Aggressive example: 10 years, start with $0, growth rate = 7%, invest $6,000 per month
So to become a millionaire in 10 years using the stock market (in let’s say a passive way through ETFs) you need to be investing $6,000 a month. I don’t know many people who could pull this off! I’ve also tweaked the growth rate to be more aggressive (you’re working hard to minimise fees and always find the best ETFs).
It does seem hard for the average Australian unless they’re on $180k+. Or if they have side income in addition to their full time job.
Parameters:
Initial amount = $0
Growth rate = 7%
Monthly investment =$6,000
My main takeaways were the importance of time and periodic investment. I don’t think we can really control growth rate, so it’s best to set that at a lower amount and not try and tweak that to achieve our outcomes.