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A lot of people like the idea of becoming a millionaire – and the stock market is a common place to try and make the dream come true. It may seem that the way to aim for a million is to invest in dozens of little-known companies and hope that one of them hits it big.
For example, Nvidia has soared 2,635% over the past five years.
Five years ago, I was already aware of the chipmaker’s growth story. If I had invested under £40,000 in its shares then, I would now be a millionaire thanks to my Nvidia holding alone.
There are several problems with such an approach however (and not just that it relies on the benefit of hindsight).
Putting all of my money into one share, no matter how attractive it seems, goes against the basic risk management principle of diversification. Secondly, loads of small companies end up going nowhere from an investment perspective – even if they…
