$250 a Month to Invest? Here’s How I’d Aim to Turn it Into $1M

A strategy that aims to invest modest amounts regularly in high-quality shares at cheap prices could produce a surprisingly large portfolio, in my view.

A stock price graph showing growth over time

Image source: Getty Images.

The 2020 stock market crash may have provided an opportunity to invest in high-quality shares while they trade at low prices. Over time, they could deliver impressive returns that have a positive impact on an investor’s portfolio.

As such, now could be the right time to start buying a diverse range of stocks for the long term. Even a modest monthly investment of $250 could produce a seven-figure portfolio in the coming years.

Invest in high-quality shares at low prices

While many high-quality shares have rebounded after the stock market crash, it is still possible to invest in a wide range of sound businesses at low prices. For example, some companies face challenging near-term operating outlooks that may have caused investor sentiment to weaken. However, their solid financial positions and competitive advantages may mean that they are able to deliver impressive capital returns over the long run.

Clearly, some stocks are priced at low levels for good reason. For example, they may lack the capital to invest in new technology or in changing their business models in a fast-paced global economy. Therefore, it is crucial to invest in businesses only after thorough due diligence. By analysing a company’s annual reports, recent investor updates and assessing competition within an industry, it may be possible to unearth the best stocks that offer the most appealing value opportunities. Buying them could lead to outperformance of the wider stock market.

A long-term strategy

Of course, a strategy that aims to invest in undervalued stocks today may take time to deliver high returns. Risks such as coronavirus continue to affect the world economy’s prospects, as well as investor sentiment. Therefore, in the short run, buying stocks may not necessarily produce positive returns.

However, the long-term track record of indexes such as the FTSE 100 and S&P 500 shows that they have always recovered from their downturns to produce record highs. In doing so, they have generally produced high single-digit annual returns. Therefore, investors who buy and hold a diverse range of high-quality businesses could benefit from their likely recoveries. This could have a positive impact on a regular investment, and may produce a large nest egg as the global economic outlook likely improves.

Making a million

A plan to regularly invest a modest amount of capital in high-quality businesses at low prices could lead to market-beating performance. However, an investor could still generate a portfolio valued in excess of $1m if they obtain the stock market’s long-term annual total returns of 8%.

For example, it would take 42 years for a monthly investment of $250 to be worth $1m at an 8% annual total return. However, by taking advantage of today’s low stock market valuations, it may be possible to reduce that amount of time. In doing so, an investor could outperform the stock market and enjoy greater financial freedom in the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Coronavirus

Aircraft wing plane

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

Read more »

A airplane sits on a runway.

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »

tech and analysis
Stocks for Beginners

If You Invested $1,000 in WELL Health in 2019, Here is What It’s Worth Now

WELL stock (TSX:WELL) has fallen pretty dramatically from all-time highs, but what if you bought just before the rise? Should…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »