Recently, Hargreaves Lansdown spoke to some of its ISA millionaires about their wealth generation journeys. Here are three investing tips that lead to those seven-figure ISA accounts.

Max out your ISA allowance

One tip was to contribute as much as possible into an ISA each year. 

“I put in the maximum amount each year and as soon as possible after the tax year begins,” said one ISA millionaire.

Now, not everyone is going to be able to put in the full £20,000 allowance. However, from a wealth-creation view, the more committed, the better. Over time, even smaller contributions into an ISA can turn into a significant sum of money, all of which is tax-free.

And this tax-efficiency shouldn’t be underestimated. Once your investment portfolio is worth six figures, an ISA could literally save you thousands in capital gains tax every year.

Invest for the long term

Another tip from ISA millionaires was to invest with a long-term focus (five years+).

“You should buy something that if you had to put it away in a box for 10 years and forget about it you would be happy to hold it for those 10 years,” another ISA millionaire said.

This is a great tip. All too often, investors get scared out of the stock market due to short-term volatility. They panic sell and end up losing money. One of the keys to investing success is understanding that stocks are volatile in the short term. Swings of 10% or 20% are very normal. Over the long term however, a diversified portfolio of high-quality stocks tends to rise.

Investors also often rush to bank short-term gains if a stock has risen 20% or 30%. There’s nothing wrong with this. However, investing for the long term means it may be possible to generate returns much higher than this.

Don’t overtrade

A third tip from Hargreaves Lansdown ISA millionaires was not to overtrade.

“Don’t overly worry about timing the market and try not to trade too frequently,” said another.

Overtrading can hurt you in two ways. Firstly, it can result in much higher fees. Excessive fees can reduce your capital. Remember, a stock portfolio is like a bar of soap… the more you handle it, the smaller it gets.

Secondly, trying to predict daily ups and downs can leave you vulnerable to missing out on some of the best days in the market. Resisting the urge to trade frequently might be tough, but it’s often worth it over the long term.

“The trick is, when there is nothing to do, do nothing,” says Warren Buffett.

ISA millionaire tips

In summary, these ISA millionaire strategies aren’t complicated. In fact, they’re all very straightforward. The takeaway here is that with a regular savings plan and a simple long-term investment strategy, it really is possible to build up a seven-figure ISA.

The post 3 tips from ISA millionaires appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Buffett’s first rule

Buffett’s first rule of investing — “never lose money” — is good all-weather advice. As such, I think it’s likely the ‘Sage of Omaha’ will continue to recommend that all investors should do their homework, regardless of who might win the US election. The more you know about a company before buying its shares, the better your chances of making money.

Gambling with your cash based on the outcome of events, however tempting, isn’t advised. This is partly why the wealthiest investor on the planet doesn’t have a TV in his office. Not being hooked up to the 24/7 newsflow allows him to concentrate on the things that truly matter. The businesses he buys stakes in.

Buffett’s first rule has an additional meaning for those investing in the UK. By not keeping your shares within an ISA, you will lose money by virtue of paying capital gains tax on any profits you make. To make matters worse, you’ll also be taxed on any dividend income you receive from stocks you own. This double-whammy could really hurt your chances of ever making it to millionaire-status.

Keep buying wonderful companies

Buffett buys shares in quality businesses when they go on sale. The coronavirus crash earlier in the year was an excellent example of when, to parphrase the great man, “we should all have been greedy rather than fearful.” The forthcoming US election could be another. 

Great companies are likely to remain great. This is regardless of who emerges triumphant and whatever decisions they make during their presidential term. Sure, increased regulation of big tech giants, or the resumption of the trade war between the US and China, could make investors temporarily skittish. But the major themes of investing in the years ahead are unlikely to be affected.

Companies specialising in clean energy sources, for example, are very likely to remain popular, given the ongoing concerns around climate change. Demand for healthcare will also continue to rise as populations age. The need for cybersecurity will increase as the amount of ‘smart’ stuff in our homes grows.

None of the above will be impacted by who gets the keys for the White House. Invest accordingly. 

Hold forever

Market commentators will continue to speculate over what a second term for Trump, or a first for Biden, will mean for global markets. The truth is, it really shouldn’t matter to ISA investors buying shares for the long term.

Buffett has frequently said that his favourite holding period is “forever.” Earlier this year, he also remarked that “nothing can stop America when you get right down to it.”

So far, he’s been absolutely right. Pull up a chart of the S&P 500 index over the last 50 years, or so. You’ll see a line rising from the bottom left to the top right. In other words, US stocks have gained massively in value, regardless of all the Republican and Democratic leaders over that time.

Don’t fear any US-election volatility. Do the same as Buffett. Embrace it.

The post Forget the US election. I’d listen to Warren Buffett and buy cheap shares to become an ISA millionaire appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers 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.

Notwithstanding this, there will very likely be times in any investment career when it makes sense to sell a stock. Here’s are three reasons for doing so.

The story has changed

It’s remarkably easy to fall in love with a particular share, particularly one you’ve devoted time to thoroughly researching.

Sadly, nothing is guaranteed in the market, regardless of how good the company’s story is. Today’s dream stock can quickly become a nightmare if events (internal, external, or both) go against it. The key is learning to distinguish a major setback from a temporary hurdle.

One might argue that the investment case for travel stocks has dramatically changed in 2020 due to the pandemic. Even when the coronavirus cloud does finally lift, some companies’ share prices may remain stagnant for a long time afterward due to the financial damage they’ve endured.

A good example from a different sector would be Lloyds Bank – one of the most popular stocks with retail investors.

Despite making it through the financial crisis, anyone backing the shares in March 2009 won’t have made much money since (dividends excluded). Had they switched to technology stocks, however, the outcome would have been very different.

The price is too high

Great shares are seldom without friends and rarely cheap as a consequence. What’s more, the very best of the best just go on getting more expensive as they continually beat expectations. This explains why top UK fund manager Terry Smith thinks there are more important things to focus on than the price you pay for a stock. 

Then again, there will be times when a share price becomes so utterly detached from a company’s fundamentals that taking at least some money off the table feels like the right thing to do (especially as you won’t pay tax on capital gains if it is held within an ISA). An example of this might be when a company is hyped beyond belief but has yet to make a profit.

Even if a stock’s prospects really are great, it will take time for these to be realised. Will all investors be prepared to hold and wait? I doubt it. 

You’ve made a mistake

Few active ISA investors are able to strike it rich without making a few/a lot of mistakes along the way. This may be the result of acting too cautiously, recklessly, or simply picking a stock that didn’t work out.

Regardless of the reason, admitting that you’ve made a mistake can be hard. This is why we cling to losing stocks even when there’s little chance of recovery. Even if a company is able to turn things around, the numbers might still be against you. Being 50% down requires a share to double in value just to get you back to break-even.

Now, that sort of move isn’t impossible, particularly in illiquid small-cap stocks, but it can take a while if it comes at all. In the meantime, other companies are making great money for their investors.

The opportunity cost of staying invested in a loser can often be greater than accepting the loss and learning from it. 

The post Want to become an ISA millionaire? Know when to sell shares! appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

It’s not (all) about the price

Having summarised the approach of his quality-focused, flagship Fundsmith Equity Fund, Smith explains why the price of a stock is not the most important consideration in his investment approach. To do this, he uses a hypothetical example (49 minutes 57 seconds in) of someone investing in the US stock market at its low, back in 1917, and selling at the height of the dotcom boom in 1999.

Over this 82-year period, this investment generated a very-decent annualised return of 11.6%. At first glance, this appears to show that market timing is the route to riches.

Having performed the calculations for his audience, however, Terry Smith shows why this isn’t the case.

Timing isn’t everything

Despite the brilliance (or luck) of this investors’ timing, it doesn’t actually contribute all that much to their eventual returns.

To be more specific, only 20% of this outcome was due to when he/she bought and sold their investment. By contrast, 80% of gains were down to what the companies did over this time period.

To further cement his point, Terry Smith then uses the example of Unilever. Between 1995 and 2016, the FTSE 100 company generated an annualised return of 10.9%.

While again providing a solid return for holders, only a very small part of this result is due to the rise in valuation. The vast majority of the investment’s success (90%) is due to Unilever reinvesting and compounding its earnings over time. In other words, timing matters even less with a quality business.

Buy right

I don’t know about you but I find Smith’s example both informative and comforting.

First, it suggests that investors should direct their energies to finding the best companies they can invest in. For Smith, this means focusing on resilient, non-cyclical businesses with great brands and predictable earnings.

Second, it neatly summarises why we should avoid the hand-wringing exercise that is trying to time the market. If history is anything to go by, it contributes little to returns. This is why we shouldn’t fear another market crash if we plan to invest for many years. To paraphrase Terry Smith, just ‘buy right and wait’. 

One last thing…

If you agree with Smith’s thinking (and his performance over the years suggests you really should), it also makes sense to focus more on retaining the money your investments generate. For anyone looking to become a millionaire from the stock market, this means keeping your holdings within a Stocks and Shares ISA. 

The ISA wrapper allows you to shield any profits you make from the taxman. This means more of your money is allowed to compound over time. And when the time comes to switch from growth to income-generating stocks (perhaps when you retire), an ISA will also save you from paying tax on the dividends you receive.

We may not have 82 years to invest like the person in Terry Smith’s example, but with the correct system (and minimal meddling), the end result could still be very impressive.

The post Forget the stock market crash. I think this advice from Terry Smith could make you an ISA millionaire! appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers owns shares in Fundsmith Equity Fund. The Motley Fool UK has recommended Unilever. 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.

Here’s why I can’t recommend this strategy. 

Market crash timing

Timing the market is fiendishly difficult. Who knew back in March that stocks would experience one of the sharpest falls in history, or that the FTSE 100 would tumble to as low as 5,000?

The simple answer is no one. Not even the highly-qualified fund managers with their armies of analysts and wealth of data. There were simply too many factors at play. And if the professionals can’t do it, what chance do any of us have of predicting the next one?

There might not even be another market crash for years!

Strong recovery

Just as we couldn’t predict markets would fall so dramatically in March, nor could we foresee the recovery would be so immediate or so strong. In the US, the S&P 500 index is already back to where it was in February. 

The fact that many new investors have made big money on this rebound makes picking the bottom look misleadingly easy. The survivorship bias also means we’re less likely to hear about those who sold out in March and vowed never to return. 

Show me someone who has consistently and precisely timed the market throughout their career and I’ll let them manage my money. The shorter the time frame, the larger the role luck can play in stock market success. 

I think there’s a better way.

A better route to riches

First and foremost, find great companies worth investing in. What makes a company ‘great’ is contentious. However, looking for the same things as some of the UK’s top fund managers is a good place to start.

Solid companies have a higher likelihood of making you money in the future, even if you need to pay a little bit more than you’d like. Buying an already-struggling business, even at a low price, makes things doubly-tough. The company must first survive a market crash and then turn itself around.

Secondly, hold as much stock as you can within a Stocks and Shares ISA or, for those with one eye on retirement, a Self-Invested Personal Pension (SIPP). Do this, and any profits you make will be free of capital gains tax. 

Third, buy regularly. Since you can’t expect to win at the game if you don’t play, holding back with the aim of timing the market perfectly is a fool’s errand. Over the long term, it’s compounding that will make you a millionaire, not the brilliance of your timing.

So, accept what you can’t know and control what you can, namely fees and your risk exposure. For the former, take advantage of monthly investment plans offered by your broker. This can reduce commission costs by roughly 90%!

Lastly, check your portfolio irregularly. A watched pot never boils and your holdings won’t magically grow in value simply by looking at them. In fact, this hour-by-hour, day-by-day approach makes it far more likely you’ll think you can time the next market crash.

Spoiler: you very probably can’t. 

The post Waiting for the NEXT stock market crash? I’d do this to become an ISA millionaire appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers 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.

1. Focus on the process

The first habit to cultivate is actually to stop obsessing over the value of your portfolio. As James Clear states in his book Atomic Habits: “You do not rise to the level of your goals, you fall to the level of your systems“. ISA millionaires always shoot for becoming better investors.

People will vary on the extent that they want to learn about the stock market. Nevertheless, we all should know (and frequently review) our financial goals, time horizon and risk tolerance at the very least. Stock-pickers absolutely must keep up to date with their companies too.

By focusing more on the process, you’re also less likely to become demotivated in the early years when the benefits of compounding are hard to appreciate.

2. Millionaire spending hacks 

What image springs to mind when you imagine an ISA millionaire? Fast car? Big house? In truth, a lot of eventual millionaires have no interest in showing off their wealth. They get used to living below their means. Just look at Warren Buffett.

This does not mean adopting a monk-life existence. It means keeping your spending under control.

If you’re tempted to buy something online, leave it a week before buying it. This way, you make fewer impulsive purchases. Another option is to select something you habitually spend money on, such as your morning coffee, and move that cash into your ISA at the time you’d usually buy the former. You may miss the caffeine hit initially, but the reward of seeing your savings increase immediately should compensate and make it more likely you’ll repeat the behaviour.

3. Automate to your ISA!

Investing is one of the few endeavours where it’s possible to become wealthy without actually doing much. To stick with it, however, you need to make it easy. This involves automating what you can.

Set up an instruction with your ISA provider to transfer a fixed amount of money from your current account every month. Make this coincide with payday and you won’t be tempted to splurge the money on something else. Think of it as paying a bill, albeit one that will eventually get refunded (and then some!) further down the line. 

You can also set an instruction to automatically invest the same amount in a group of shares or funds every month. Pound-cost averaging is one of the greatest tools available to private investors.

4. Be tough (on yourself)

To ensure your good deeds bear fruit, you also need to be tough in eradicating your worst tendencies. These can include constantly checking your portfolio’s value and/or selling great stocks because you’re scared or bored.

Make doing these things as hard as possible. Options include watching/reading less panic-inducing news (removing the ‘cue’ to do something) or blocking your laptop from accessing your broker’s website. In a fresh twist on the ‘swear jar’ idea, you could also have an agreement to do something you hate if you lapse. 

Remember, the biggest threat to becoming an ISA millionaire is not the occasional, inevitable market crash — it’s you.

The post 4 essential habits for becoming an ISA millionaire appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers 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.

If you had invested £1 in the UK’s smallest companies in 1955, for example, your money would have grown to an astounding £15,213 by January 2019, compared to the £991 generated through the FTSE All-Share Index (Numis, 2019).

Wow! What gives?

There are a number of factors that explain this outperformance.

First, what tiddlers lack in scale they make up for in nimbleness. It’s much easier for a minnow to adopt a new strategy that could dramatically improve revenue and profits than it is for a lumbering FTSE 100 giant.

Second, smaller firms operating in markets ripe for disruption can quickly steal market share from those who have been established for a while and may take their customers for granted. 

Last, small companies are often at the cutting edge, allowing them to offer new products to consumers/clients before the heavyweights get involved. 

Taken collectively, these reasons are why I think patient, young investors should contemplate getting some exposure.  

Where do I sign?

Hang on! Clearly, this kind of return doesn’t come without a few caveats.

First, past performance is no guide to the future. Investment professionals are obligated to highlight this to clients because, well, it’s 100% fact. History can provide some guidance but, ultimately, no one knows what returns will be like in the years ahead. 

Second, few of us will be able to stay in the market for over six decades. Many self-proclaimed ‘long-term investors’ have trouble holding the same stocks for more than a few months before selling and moving on! 

Third, small- and micro-cap investing is high risk and only appropriate for those who can stomach the inevitable ups and downs. Vastly more businesses fail than succeed, hence the need to know what you’re doing. 

Given the above (and lack of relevant passive trackers to invest in), I think the best solution is to let a professional money manager sort the wheat from the chaff and, for once, earn their (high) fees.

Some examples

One of two funds that feature in my own portfolio is the Marlborough UK Micro-Cap Growth fund, managed by veterans Giles Hargreave and Guy Feld. Almost half of the fund is made up of stocks with valuations of less than £250m. 

Performance over the long term (which is what we should really be interested in when judging manager skill) has been excellent. From the end of January 2010 to January 2020, for example, the fund returned 370%. The sector average was 246% and the FTSE All-Share returned 60%. 

Another fund I own is Lionstrust UK Micro-Cap, managed by Anthony Cross, Julian Fosh, Victoria Stevens, and Matt Tonge. At less than four years old, it’s too early to comment on performance over the long term. However, I’m cautiously optimistic given the stonking total return of 1,432% achieved since inception to December 2019 by Liontrust’s UK Smaller Companies fund (compared to the sector average of ‘just’ 705%).–

In 2019, the UK Micro-Cap fund achieved a total return of 29.1% compared to the sector average of 25.3%. Even more impressive, in my view, is the fact that the same fund achieved a gain of 3% compared to an average loss of 11.7% in 2018. This highlights how hiring good stockpickers can pay off in both good and not-so-good years.

The post Small stocks can make big money. Here’s the proof! appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers owns shares in Marlborough UK Micro-Cap Growth and Liontrust UK Micro-Cap. 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.

According to Thomas Stanley and William Danko, however, the reality is quite different. Following years of research — culminating in the publication of their classic 1996 tome, The Millionaire Next Door — they discovered that most ‘real’ millionaires rarely present themselves as being rich. Quite the opposite, in fact. You’ll probably walk past a few today and never know it. Let’s take a quick look at some of the lessons we can draw from their research.

Spend less than you earn and avoid status

It might seem obvious but spending every last penny of your monthly paycheck won’t increase your net worth. To truly become wealthy, you’ve got to be frugal and shun a lavish lifestyle. This was the top reason, the authors found, for why the people they studied were able to accumulate wealth.  

Linking in with the above, Stanley and Danko also found the millionaires they met weren’t particularly concerned with impressing others. Financial independence over status was far more important. So, not only did they spend less than most, they didn’t feel the need to spend anyway. 

A perfect example of this would be Warren Buffett, generally regarded as the greatest investor that’s ever lived. Despite being worth billions not millions, Buffett still lives in the same five-bed house in Omaha, Nebrasksa, he purchased way back in 1958 for $31,000. He could buy any house he wants but chooses to value his health and friendships over possessions.

Start investing early

Naturally, being disciplined with your money will only go so far. That’s why would-be millionaires need to take calculated risks to improve their lot. As far as the authors were concerned, this means learning about budgeting and investing from an early age. The more time spent planning your financial future (and less spent shopping), the better. 

Obviously, there can be no guarantees in investing. That’s why here at the Fool UK, we think it makes more sense to control the only thing that you can, namely your risk tolerance. There’s little point investing in small-cap shares, for example, if you can’t bear the thought of your holdings falling by double-digit percentages on some days. Recognise too that a lot of tiny companies fail, taking once-optimistic investors’ money with them. In sum, only invest in what will still allow you to sleep at night. 

Aside, from investing intelligently, the authors discovered millionaires were far more likely to work for themselves, often supplying goods or services, however mundane, to those who are already rich. 

Be financially responsible

Most millionaires are self-sufficient because they didn’t rely on handouts from their parents. Stanley and Danko found those who received a lot of financial help tend to develop into what they label Underaccumulators of Wealth. In other words, they have low net worth relative to their income. 

By contrast, the importance of being independent is then passed on by millionaires to their children who (hopefully) become financially savvy. 

The post To become a millionaire, you need to act like a millionaire. Here’s how appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers 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.

Furthermore, changes to ISAs in recent years means that they’re potentially more appealing compared to online sharedealing accounts. Increased allowances and the emergence of products such as Lifetime ISAs, for example, could lead to higher returns in the long run. As such, while it’s still not easy to make a million, there may be a better chance of doing so today than there has been in the past.

Appealing investments

While the stock market has experienced a bull run in the last decade, the FTSE 100 and FTSE 250 appear to offer wide margins of safety at present. A number of their members have delivered disappointing share price performances in recent months as a result of political and economic challenges that have caused investor sentiment to decline.

With risks such as Brexit and a global trade war being somewhat persistent, there could be a range of opportunities for investors to capitalise on low valuations for a range of stocks in both indexes. Through buying while both appear to offer good value for money, an investor may be able to improve their risk/reward ratio and increase their chances of generating high returns in the long run.

ISA changes

The increase in the annual ISA allowance to £20,000 over recent years could make it easier for investors to generate a seven-figure portfolio in the long run. Although many investors may not be able to commit the full £20,000 per year, the fact that the allowance is almost three times as much as it was a decade ago means many people may be able to commit a larger amount than they would previously to their ISA each year.

In addition, the introduction of new products such as the Lifetime ISA could provide a boost to your long-term financial prospects. It offers an annual bonus of 25% of all contributions. Since up to £4,000 can be paid into a Lifetime ISA each year, this could amount to an annual bonus of up to £1,000. As such, it could be a worthwhile product for anyone under the age of 40 to open.

Making a million

With the FTSE 350 appearing to offer good value for money at present, as well as growth potential, there are a wide range of investment opportunities available to improve your chances of making a million. Although achieving that goal may not be easy, changes to ISAs in recent years could make the task more realistic for a larger number of people. As such, now could be the right time to start investing in shares through an ISA.

The post Retirement savings: why I think it’s never been easier to become an ISA millionaire appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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.

It’s important to learn as much as you can about investing and to focus on good-quality, growing businesses. Personally, I’d avoid punting on the more-speculative stocks available and aim for steady, rather than rapid progress instead.

Here’s my simple 3-step plan:

Step 1: know what kind of beast you’re dealing with

Companies listed on the stock market behave in different ways depending on the characteristics of their underlying businesses. So before plunging into buying shares, I reckon it’s a good idea to identify what kind of beast you’re dealing with.

The best advice I’ve come across on the subject is contained in well-known US investor Peter Lynch’s book One Up on Wall Street. Lynch suggests using six categories for sorting out different companies: Slow Growers, Stalwarts, Fast Growers, Cyclicals, Turnarounds and Asset Plays.

I think it’s a useful model that has saved me from making some investing blunders. For example, sometimes cyclical firms have the appearance of fast-growing enterprises. But because the underlying operation is cyclical, rapid increases in earnings can reverse direction without much warning, taking the share price down too.

Step 2: look for strong finances

Shares have the best chance of going on to perform well if the underlying business has strong finances. I’d look for a robust balance sheet that isn’t overloaded with debt and which ideally indicates the firm has a chunk of cash in its coffers.

After making sure the business is financed well, we want to know that trading is profitable and worthwhile. I reckon Purplebricks is a good recent example of pointless trading. Revenue has been growing fast but so has the operating loss. It’s risky to increase turnover if losses aren’t reducing too.

Ideally, I want to see annual rises in revenue, profits and incoming cash flow. And there’s nothing better for proving the success of an enterprise than a dividend payment to shareholders that rises a little each year.

Step 3: focus on compounding

Finally, the key to building wealth in your Stocks and Shares ISA is to focus on compounding, in my view. You can do that by reinvesting the dividends you receive from your shareholdings and by recycling funds into more shares when you eventually sell an investment.

The great thing about compounding is that it grows your money exponentially – at an ever-accelerating pace. That means the biggest absolute gains will occur in the later years of your holding period. So it’s important to keep going. When you’re recycling your gains into the shares of great companies, your best friend is time.

In the long run, I think you have a good chance of growing your Stocks and Shares ISA into a million-pound fund. Good luck on your investing journey!

The post 3 simple steps for growing a million-pound Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.