As the summer holidays draw to a close, many people will return to their daily lives reinvigorated and ambitious about the coming year. Stepping aside from short-term goals, what about longer term financial plans? For example, if I started now, could I build my Stocks and Shares ISA into a million pound retirement pot over the next couple of decades?
I believe I could. It is not guaranteed, of course. But here is how I would go about it.
Long-term wealth creation tool
First things first. Let me explain the role of my Stocks and Shares ISA here. The ISA could help me build a retirement fund in a tax-effective way.
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.
I would be able to invest £20K each year in my ISA. That is a sizeable sum, but if I want to aim for a million I need to be willing to save and invest at a meaningful level.
My first move would be to decide which Stocks and Shares ISA seemed best-suited to my own needs. There are lots of different options to choose from.
Getting more back than I put in
Still, even if I put in my full £20K allowance annually for 20 years, that would give me £400K – far short of my target valuation.
I would hope to close the gap by putting the money in my ISA to work in the stock market. If I could growth my ISA value by a compound annual rate of 8.8%, my account would have a million pound valuation after 20 years.
How to aim for long-term growth
That might not sound like a challenging target. But remember, I am investing for the long term, through both good years and bad.
Still, I think it is achievable. It could be possible to hit that target through growth shares, income shares or a combination of both.
What matters in my view is that I buy into outstanding businesses that I think can produce outsized returns over time, thanks to strong commercial prospects and an attractive share price when I invest.
One share I hold
As an example, consider one of the shares I own in my ISA: investment trust Income and Growth (LSE: IGV).
Over the past five years, the share has fallen 10%. That may not sound like the stuff of investor dreams! But during that period, it has paid out 49.5p per share in dividends, which is around 70% of the present share price.
By investing in small and medium-sized companies and holding the shares while they (hopefully) grow, Income and Growth has been able to generate sizeable cash flows that have allowed it to pay juicy dividends. It targets at least 6p per year in dividends, around 8.5% of the current share price, but often pays more.
No company’s dividends are ever guaranteed and there is a risk that Income and Growth’s investments underperform, hurting cash flow.
But its proven management team and simple, lucrative strategy mean the share, currently yielding 15%, share has earned a place in my ISA.
The post Here’s how I’d start building a £1m ISA from scratch this September! appeared first on The Motley Fool UK.
AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!
Buckle up because we’re about to dive headfirst into the electrifying world of AI.
Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.
If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – ‘AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!
And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?
Get your free AI stock pick
More reading
My favourite FTSE 250 stock is up 9% in 6 months and has a 3.6% dividend yield!
I’m looking for the best passive income stocks to buy in September. Have I found them?
2 under-the-radar growth stocks at bargain prices
How much would I need to invest to earn £1,000 in passive income each month?
The UK stock market’s lagging behind in tech. Could this thriving AIM stock change that?
C Ruane has positions in Income & Growth Vct Plc. 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.
