Investing within a Stocks and Shares ISA can be a great way to build wealth.
According to HM Revenue and Customs (HMRC), the number of ISA millionaires in the UK has surged to more than 4,000.
The rules say we can invest as much as £20,000 in an ISA each year. Then that money can grow via investments without attracting tax.
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.
However, not many people have that much money free each year to bung into shares. So I’d plan to invest just £497 a month, which adds up to £5,964 a year.
Small beginnings can lead to big things
But that lesser amount would still have the potential to make a big impact over time and may lead to a portfolio worth a million.
US multi-billionaire investor Warren Buffett reckons America’s S&P 500 index has delivered compound annual gains running at just over 10% since the 1960s. If I can replicate that rate of return, it would take around 29 years to build an investment of £497 a month into a pot worth a million.
Buffett’s own record over the same period is almost double that 10% average annual return. But, of course, there are no guarantees I can match Buffett’s performance or that of the S&P 500.
Nevertheless, those ISA millionaires have clearly performed well. But most played the long game because the process of compounding can lead to bigger gains over time.
Another important factor is careful business selection. That means doing plenty of initial research before buying any particular stock.
Like most investors, I keep my best ideas on a watch list and aim to execute the purchase of shares at opportune moments. For example, right now I like the look of Bakkavor (LSE: BAKK).
Trading well and improving
The company is a UK-based provider of fresh prepared food in the UK, US and China, which it supplies to supermarkets and other outlets.
Trading has been going well and the progress reflects in the share-price chart.
September’s half-year report shows more progress with the numbers. The outlook statement declares the directors are “confident” the firm will deliver profit ahead of expectations for 2024.
Meanwhile, City analysts have pencilled in a 22% jump for normalised earnings this year and just over 10% for 2025.
I like the food sector for its defensive characteristics. Firms like Bakkavor are often less affected by the ups and downs of the economy than some others. Nevertheless, the stock comes with its risks.
The economic shocks of the past few years have caused the business difficulties and that shows in the poor multi-year earnings record. Part of the problem is the operating margin is quite low, running at about 4.9%. It’s possible challenges may continue over the coming years.
Nevertheless, chief executive Mike Edwards said restructuring activity is supporting the company’s 2024 performance. The directors are focused on rebuilding margins and they are “excited” about developing a stronger business as general economic conditions improve.
On balance, and despite the risks, I’d research and consider Bakkavor for inclusion in a diversified long-term portfolio now. After all, with the share price in the ballpark of 152p, the forward-looking dividend yield for 2025 is a tasty 5.4%.
The post I’d drip feed £497 a month into a Stocks and Shares ISA to aim for a million appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
Looking for shares to buy with dividend yields over 7%? I’d consider these 3!
With £1,000 to invest I’d buy 19 shares in this opportunistic Dividend Aristocrat
2 of my favourite bargain penny stocks in October!
At today’s share price, the Tesco dividend forecast still looks juicy
Here’s the growth forecast for BAE Systems shares through to 2026!
Kevin Godbold 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.
