There are plenty of Stocks and Shares ISA millionaires in the UK. Given the lack of tax that’s imposed when selling stocks for a profit or receiving a dividend, it’s an attractive way to grow wealth. I don’t have an ISA worth £1m at the moment. But if I was starting off with just £10k ready to go, here’s how I’d try and make it a reality.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The right time to be getting involved
To begin with, I think it’s a good time to start out with an ISA. The UK stock market has been treading water for much of this year. Even though company fundamentals have been good, pressure has been put on the market thanks to high inflation and rising interest rates.
However, I believe we’re close to the end of the interest rate hiking cycle. Further, the past few months have been encouraging, with lower inflation data releases.
What this means is that now could be a smart time to start investing, being ready for a potentially optimistic mood in the market for 2024.
A risk to my view is if the UK slips into a recession next year. This could spark a slump in stocks.
Deploying the £10k
I’d take my initial funds and split it 70% in growth stocks and 30% in value stocks. The reason I’m being so aggressive with my allocation to growth ideas is because I’m targeting an ISA value of £1m. In order to go for this, I do have to take on risk. In order to hopefully strike it gold with a stock that exponentially grows in value over the next decade, I have to go for it.
At the same time, I’m not being stupid. I’ll not put more than £1,000 in any one company. The reason for this is so that my initial portfolio is diversified.
Putting £3,000 in value stocks is the lower-risk part of the portfolio. The aim here is that over the coming years, the share price of these firms should increase back to a fair value. This would result in a profit.
Going from £10k to £1m
The big question is how to take the ISA to the next level. The initial £10k will get me going, but it’s a far cry to £1m.
Interestingly, if I just had that £10k and assumed an annual growth rate of 8%, in 20 years my ISA would be worth just under £50k.
To increase the pace, I’m going to need to invest on a regular basis. I can put in £20k per year for the ISA. Assuming that I do this (on a monthly basis), the pace of my ISA growth jumps. In fact, by year 20, my ISA should be worth £1.03m.
There are a lot of variable factors that could change things. For example, I could have some growth stocks that provide massive gains, which means my average growth rate is higher than 8%. Or I could find that I can’t invest as much as I had planned. This would mean that I could still reach £1m, but it might take 25 or 30 years instead.
The post How I’d aim for a £1m Stocks & Shares ISA starting with £10k appeared first on The Motley Fool UK.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
