A million pounds doesn’t go as far as it once did, but it’s still a very sizeable amount of money. And for a lot of folk, that figure still grips the imagination. Some investors, though, have already reached that millionaire milestone by investing in their Stocks and Shares ISA account.
In fact, there are an estimated 2,000 ISA millionaires in the UK today. Their average portfolio value stands at £1,412,000, as of June 2022, according to data from HMRC.
These are people who have invested their savings month after month, year after year, and built their pots up over time to reach that million figure. The key ingredients are consistency, time, and patience.
Here’s how I’d invest £77 a week in a Stocks and Shares ISA to get the ball rolling.
The maths
Firstly, here are the numbers to prove that aiming for a million is realistic, over the appropriate time frame.
Let’s assume I start with £12,500, as that is the amount it’s estimated the average person has in savings in the UK today. If I were to save and invest a further £77 a week, that works out at £333 a month. Investing £333 a month, it would take me 30 years to reach a figure of £1m.
This is assuming a 10% annual return, which is definitely achievable.
Compounding
Year
Deposit Amount
Accrued Interest
Balance
0
£12,500
–
£12,500
1
£3,996
£1,497
£17,993
5
£3,996
£13,872
£46,352
10
£3,996
£49,591
£102,051
20
£3,996
£252,050
£344,470
30
£3,996
£868,329
£1,000,709
The power of compound interest is astonishing. Even though Warren Buffett started investing at the age of 11, about 99.7% of his wealth was created after his 52nd birthday. No wonder Albert Einstein supposedly called compound interest the “the eighth wonder of the world”.
Indexing
When people say ‘the stock market’, they’re often talking about the S&P 500, which is the largest 500 companies listed in the US.
And that is where I’d start investing, because the S&P 500 has gained value in 40 of the past 50 years, generating an average annualised return of 9.4%.
I’d invest in the S&P 500 through a low-cost index fund, which tracks the performance of the index. It’s actually down 18% so far this year, so I intend to invest in the index myself soon.
Diversity
Beyond the index, I would look to build a diverse portfolio containing both dividend and growth stocks. For income, I’d start with the FTSE 100, as there are some very attractive high-yield stocks listed in the UK.
A few that stand out to me right now are National Grid, Legal & General, and Rio Tinto. These stocks currently have dividend yields of 5%, 7%, and 9%, respectively. I have been buying shares of the first two stocks recently, and continue to monitor Rio Tinto as that 9% dividend yield looks very appealing to me.
For income and growth, I like the look of British drinks giant Diageo and consumer data giant Experian. Again, these are stocks I have in my own ISA portfolio.
Of course, it goes without saying that all stocks carry varying degrees of risk. That’s why it’s so important to I keep my portfolio diversified.
The post How I’d invest £77 a week in a Stocks & Shares ISA to aim for a million appeared first on The Motley Fool UK.
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Ben McPoland has positions in Diageo, Experian, Legal & General Group, and NATIONAL GRID PLC ORD 12 204/473P. The Motley Fool UK has recommended Diageo and Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.