Could buying income stocks put me halfway towards being a millionaire by 2032?

The idea of ​​becoming a millionaire by investing in the stock market crosses most people’s minds at some stage. But in reality, few people will achieve that goal. There are various reasons for that. But I think what’s common is that not many people have a serious plan to try and become a millionaire by owning stocks, and then put money down to make it happen. I think doing it is difficult, but still possible. Here is an example, based on buying UK income shares.

Make money to work

The core of my approach is to regularly set aside money to invest in stocks. As well as using that cash to buy shares, I will reinvest all the dividends I get to buy more shares. That is known as compounding.

If I set aside £3,000 a month and compounded it, aiming for a compound annual growth rate of 10%, I would have a stock portfolio worth over half a million pounds in less than ten years. By 2032 I should be sitting on around £511,000 worth of shares.

Compounding works like a snowball that can continue to grow in size, as the dividend itself effectively starts to earn dividends. So as time goes by, my progress should be faster. I should be a millionaire in 14 years. Starting this January, that could mean I’ll have a seven-figure stock portfolio by 2037!

Know math

That approach involves some significant assumptions, however.

At first, I used an amount of £3,000 per month. That’s a huge amount of money to invest, even if becoming a millionaire is an ambitious goal, so it’s no surprise. I can use the same plan with a smaller monthly contribution. However, my progress will be slower.

A compound annual growth rate of 10% is also ambitious, although it may be achievable. It will be critical that I pick the right stocks. I would focus on investing in high quality companies that I felt could sustain dividends instead of chasing yield and ending up buying value traps.

The example above is also based on fixed dividends and stock prices. In reality that might not happen and I might even lose money. But the example illustrates the power of compounding dividends to help me reach my goals.

Focus on income stocks

When my plan calls for a 10% compound annual growth rate, why am I focusing on income stocks? After all, if I pick the right growth stocks, I can get those results too.

I will focus on income shares if I put this plan into action because I feel that there are now some high quality income shares selling at attractive prices and with high yields to boot.

For example, insurance Direct Line yields 9.7%. If I buy the stock and the company keeps paying the current dividend (which is never guaranteed), just a little capital growth could help me reach my 10% annual return target.

By choosing stocks carefully and selectively, diversifying my portfolio and sticking to my plan, I think I could be half a stock market millionaire in ten years.