The Stocks and Shares ISA’s the best investment product out there by far. Investors can choose from a vast range of stocks, giving them plenty of opportunities to grow their money while allowing them to spread their risk effectively.
What sets the ISA apart though as a great wealth builder are the tax benefits on offer. HMRC doesn’t take a penny in tax from any capital gains or dividends investors make. This provides an extra cash boost individuals can use to accelerate the compounding process.
The question is, what are the odds of becoming a millionaire with one of these products? They might be higher than you think. Today there are more than 5,000 people with accounts worth £1,000,000 or more.
So what can investors do to improve their chances of joining the ISA millionaire club?
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.
Making a £1m ISA
Some of the successful strategies millionaire investors have used to build their nest eggs include:
- Investing as much as possible early in the tax year to maximise compound gains.
- Creating a well-diversified portfolio by region and sector.
- Making a commitment to investing regularly.
- Holding growth, value, and dividend shares to target a steady annual return over time.
- Reinvesting dividends to boost portfolio growth.
Today’s investors are in a strong position to grow their wealth thanks to the vast amount of information and investing tools available online. Resources like The Twelfth Magpie can help individuals discover promising stocks to buy. Modern broker platforms have also made investing more simple and accessible.
This means that, even if you can’t hit the magic £1m milestone with an ISA, you can still create life-changing wealth, as I’ll demonstrate.
How much could you make?
Let’s say you can invest £500 a month. If you can achieve an 8% annual return over 30 years and reinvested any dividends, you’ll have an ISA of £745,180. That 8% return is at the lower end of the 8%-10% long-term stock market average.
But how about if you can hit that 10%? Based on the same £500 monthly investment, you’ll have £1,130,244 in your account.
There are plenty of top stocks out there to realistically target a return like that. Sunbelt Rentals (LSE:SUNB) is one I hold in my own portfolio — it’s delivered an average annual return of 21.4% over the past decade.
Before moving its listing to the US in March, Sunbelt was a FTSE 100 company known as Ashtead. It still has a secondary listing in London. So what’s its secret? Through its machinery rental operations, it generates enormous amounts of cash that it’s used to rapidly expand. Operating profits have subsequently leapt 165% over the last 10 years.
Sunbelt’s now the second-largest operator in the US, and enjoys brilliant earnings potential as government infrastructure spending rises. Private sector spending in the near term might be weaker. But I think the future here is also bright, underpinned by growth sectors like renewable energy and data centres. It’s a top stock I plan to hold in my ISA for years to come.
