On April 6, 1999, the UK introduced the Stocks and Shares ISA to replace Personal Equity Plans (PEPs). Both were created for similar reasons — to encourage citizens to build long-term wealth by investing in the stock market.
Today, ISA account holders can invest up to £20,000 a year without being taxed on any capital gains. And it’s not just for individual stocks and shares — the full list of eligible assets includes:
- Corporate shares
- Government bonds
- Corporate bonds
- Unit trusts
- Open-Ended Investment Companies (OEICs)
- Investment trusts
- ETFs
- Cash
This flexibility’s ideal for an investor planning for retirement, because broad diversification is a great way to reduce risk. And when you’re thinking in terms of 20-30 years, even small risks can become big problems.
So how much money can compound inside an ISA over the long run? Let’s look at some examples.
A few portfolio examples
A conservative, low-risk portfolio could return 3.5%-4.5% a year. It might include 50% UK gilts, 30% corporate bonds, 10% defensive shares and 10% cash. Something a bit more balanced might include 60% global stocks, 30% investment-grade bonds and 10% in ETFs or property. That could achieve 5%-10% returns a year.
More adventurous investors would aim for 10%-20% returns a year. That would be a riskier portfolio — think 90% global & emerging stock and 10% specialised sectors like tech and health.
This table shows the historical average returns such portfolios have achieved:
| Portfolio Profile | One-Year Horizon | FIVE-Year Horizon | 10-Year Horizon |
|---|---|---|---|
| Conservative | 3.5%-4.5% | 4%-4.5% | 4.2%-4.5% |
| Balanced | 5%-10% | 5.5%-6.5% | 6%-7% |
| Adventurous | 10%-20% | 7%-8.5% | 8%-9.5% |
So depending on your risk profile, £20,000 in an ISA could deliver vastly different returns over 10 years. The lowest risk option would grow to £30,416-£31,339.
At the high end of the most adventurous profile (9.5%), it would compound to £51,521. Lock it in for another 20 years you could have £132,721. Not life-changing, but a decent return from a one-off investment.
The adventurous route
As you can see, focusing on individual shares can really help boost returns. A good example in recent years is Games Workshop (LSE: GAW). The UK-based fantasy game figurine maker designs, manufactures, and distributes miniatures for its globally famous Warhammer universe.
Over the past decade, its success has been unmatched, with the price soaring over 4,200%. Intense popularity and customer loyalty has led to skyrocketing sales, helping it maintain a net profit margin of over 30%.
Key factors that have helped it succeed include full ownership of all its operations, lucrative royalties, and high operational gearing. Niche, fully-owned, high-demand businesses are what you want to look for when targeting growth.
Of course, that kind of explosive price growth is unlikely to happen again. But it reveals what’s possible with individual stocks as opposed to bonds of trusts.
Games Workshop still faces notable risks that could derail the growth story: single-IP reliance (Warhammer), shifting habits, and supply chain disruption. But for now, it’s hauling in that revenue (projected to £655m in 2026) so it’s certainly worth considering for an ISA.
However, never look at one stock alone. To spread risk, be sure to mix it up with a few income shares, defensive plays and an ETF or two.
Should you invest £5,000 in Games Workshop Group Plc right now?
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Mark Hartley does not hold any positions in the companies mentioned.
