While the LISA can be a great way of saving for a first home, my priority is growing my retirement savings via growth-focused stocks and funds. After all, any capital gains made via investments are tax-free. One example of the latter I’ve started building a position in this month is Marlborough Nano-Cap Growth.

My latest LISA buy

Nano-Cap aims is to increase investors’ capital by more than the FTSE SmallCap Index (ex-Investment Companies) through buying the best of the UK’s listed minnows. At the time of writing, these include software business IQGeo, metal recovery business Jubilee Metals, and leak fixer Water Intelligence.

In terms of sector breakdown, the Nano-Cap Growth fund has almost 30% of assets invested in tech businesses. This shouldn’t come as a surprise considering the fund’s growth-focused approach. Collectively, Industrials and Consumer Discretionary companies make up another 30%. However, just 3% is invested in ‘Steady Eddie’ Consumer Staples.

So, why pick this fund for my Lifetime ISA over others?

Top performer

Well, the long-term performance has been great. According to Trustnet, the fund has delivered a 179% return since August 2016. Its benchmark has ‘only’ doubled in the same five-year period. This ranks Marlborough Nano-Cap Growth second out of a field of 45 funds dedicated to this part of the market.

Comparing this to the derisory performance of the FTSE 100 (up 4%) also helps explain why I definitely want some exposure to small-cap stocks in my LISA. Consider the gains I could make if I held this for 10, 15, or even 20 years! 

Expect volatility

Of course, the pursuit of higher returns comes at a cost. As experienced Fools will know (and newbies quickly discover), market minnows can soar in value on just a bit of news. Unfortunately, the opposite is equally true.

Yes, the diversification offered by the fund gives some protection. However, a rollercoaster ride is still quite possible.

This specific fund might also underperform. In fact, Nano-Cap Growth has returned 6% less than its benchmark over the last six months.

Obviously, judging form on such a short period makes little sense. Nevertheless, it’s important for me to keep track of how things are going to make sure the fees I’m paying to hold this in my Lifetime ISA are still worth it. 

Ah, yes, fees. To be frank, the 0.67% ongoing charge I’m paying via my broker isn’t that high for a specialised fund. That said, it’s still a lot more than I’m paying for a passive Vanguard small-cap fund I hold in another account. Picking my own stocks (which I also do) would avoid these charges completely. 

Sitting still

Buying Nano-Cap Growth for my Lifetime ISA now may not turn out to be one of my better decisions, at least in the short term. Since I’m terrible at timing the market, I know it’s better to be invested than not.

The key to successful investment returns isn’t so much about what you do, it’s about sitting tight and not doing anything! 

The post 1 fund I’ve been buying for my Lifetime ISA in August appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Marlborough Nano-Cap Growth. 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.

In the current financial environment, that risk-free 25% bonus could be a huge financial advantage. Put that bonus money to work now, while the stock market is depressed, and the results could be incredible in the long run.

Buying opportunities

The recent stock market crash has thrown up some amazing opportunities for long-term investors. Whether you’re investing for dividends or growth, there are some bargains on offer.

Take alcoholic drinks champion Diageo – which owns a number of top brands including Johnnie Walker, Tanqueray, and Smirnoff – for example. A little over a month ago, it was trading at 3,200p on a P/E ratio of nearly 25 with a yield of 2.1%. Now, however, the shares can be bought for around 2,400p which equates to a P/E of 18 and a yield of 2.9%. I think that’s a steal, given the company’s track record and long-term growth prospects.

Another example of a stock that looks attractively priced right now, to my mind, is JD Sports Fashion. Its share price has fallen from around 880p to under 300p over the last month. That means its P/E ratio has dropped from around 30 to just 11. I see that as a bargain. 

These are just a few examples of the opportunities available to investors right now. There are plenty more. For this reason, I think it’s a great time to be drip-feeding money into the market.

25% more buying power

Now, going back to the Lifetime ISA, the advantage of investing within this account, as opposed to a regular trading account or a Stocks and Shares ISA, is that you’ll have 25% more buying power. That could make a big difference to your wealth over time.

For example, let’s say you have £2,000 to invest in shares right now. If you invest within a Lifetime ISA, your £2,000 will be automatically boosted to £2,500. Now, let’s say your shares rise by 50% over the next two years as the stock market recovers from its recent crash. This means your £2,500 investment would be worth £3,750. That’s £750 more than it would be worth had you just simply invested your £2,000 in a regular trading account. That’s the power of the Lifetime ISA. That 25% bonus can very be powerful.

I’ll point out that the Lifetime ISA does have some restrictions to be aware of. This ISA isn’t as flexible as other ISAs. Yet in my view, the 25% bonus outweighs the restrictions. If you’re investing for retirement, I think it’s a great account to use.

The post Why I think it’s a great time to invest in a Lifetime ISA appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Edward Sheldon owns shares in Diageo and JD Sports Fashion. The Motley Fool UK has recommended Diageo. 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.

You could even do better than this though. If you’ve yet to contribute to a Lifetime ISA this financial year, you could potentially pick up £2,000 for free in the next few months, using what I call the ‘ISA deadline trick’. Here, I’ll show you how it’s possible to pick up £2k for free from the Lifetime ISA in the space of just a few months.

The Lifetime ISA 

Before I explain, it’s worth recapping how this ISA works. Open to those in the UK aged between 18 and 40, the Lifetime ISA is a savings and investment account that allows you to invest in a broad range of stocks, funds, and other investments on a tax-free basis. They’re offered by a range of investment providers, including Hargreaves Lansdown and AJ Bell. 

Aside from the fact that all gains are tax-free, the big advantage of this ISA is that for every pound you contribute (up to the annual allowance of £4,000 per year) the government will give you a 25p bonus, up to age 50.

On the downside, the Lifetime ISA does have some restrictions to be aware of. Savers cannot access their money (without harsh penalties) until they either turn 60 or buy their first property. This means the account isn’t as flexible as other ISAs such as the Stocks & Shares ISA.

Overall, however, the Lifetime ISA has the potential to be a very effective retirement savings account. With a cash bonus of £1,000 up for grabs every year up to the age of 50, this ISA can really help you turbo-charge your retirement savings. 

£2k ISA deadline trick

Now, the annual ISA deadline is the 5 April, which is just weeks away. This means if you have money to invest for retirement right now, and you haven’t yet contributed to a Lifetime ISA this financial year, you could potentially pick up £2,000 in bonuses in just a few months.

All you need to do is contribute £4,000 into a Lifetime ISA before the 5 April ISA deadline, and then contribute another £4,000 into the ISA shortly after the deadline. The result is that you’d pick up two £1,000 bonuses, taking your £8,000 contribution to £10,000 in a very short period of time.

Of course, to pick up £2k in bonuses, you could also contribute £4,000 before this year’s ISA deadline and another £4,000 any time before next year’s deadline. However, in my view, the sooner you get your hands on your bonus money the better. 

Investment ideas  

Once you pick up your bonus, you’ll want to put that money to work. You have plenty of options. 

One would be to invest in a top investment fund such as Fundsmith. This fund has roughly doubled investors’ money over the last five years, despite the fact that stocks have fallen recently. Another option is to go with a low-cost tracker fund that tracks an index. Alternatively, you could put together a portfolio of high-quality stocks yourself. There are some great opportunities at the moment. 

The choice is yours. If you’re looking for investment ideas, you’ll find plenty right here at The Motley Fool. 

The post How the Lifetime ISA could get you £2k for free in the next two months appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Hargreaves Lansdown and has a position in Fundsmith. 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.

However, if I had to list the smartest move you can make while you’re still under 40, I’d say it’s opening (and saving into) a Lifetime ISA for retirement. Here, I’ll explain why this particular ISA – which is only open to those aged between 18 and 40 – is so powerful.

An extra £100,000+ in retirement

The first major advantage of the Lifetime ISA is that it comes with 25% bonuses from the government on contributions of up to £4,000 per year, to age 50. So, if you put in the full £4k while you’re eligible, you’ll pocket £1k for free. This is a phenomenal deal that could really turbocharge your wealth over time.

Consider this hypothetical example. Let’s say you put £4,000 into a Lifetime ISA every year between the age of 30 and 50 and your friend puts £4,000 into a Stocks & Shares ISA every year between 30 and 50. You both invest your money in the same diversified portfolio of stocks that generates a return of 8% per year (these gains will be tax-free in both accounts), and you both leave the money in your respective ISAs until you turn 65.

By the time you both turn 65, your friend’s Stocks & Shares ISA will be worth around £583,000 – which is certainly a healthy amount of savings. However, due to the extra £1,000 you picked up every year from the government between the age of 30 and 50, your Lifetime ISA will be worth a huge £729,000.

That’s a difference of nearly £150,000! Are you starting to see the power of this ISA?

Access your money tax-free

Yet it gets better. The other huge advantage of the Lifetime ISA is that once you turn 60, you can access your money completely tax-free. Don’t underestimate this benefit – it could save you tens of thousands of pounds in tax.

For example, let’s say you’ve just turned 60 and you have £500,000 saved in a workplace pension or Self-Invested Personal Pension (SIPP). You can access this money, but unfortunately, you can only take 25% of it tax-free (£125,000 in this case). Any further withdrawals will be added to your income and taxed at your normal rate.

So, if you wanted to withdraw £25,000 per year for retirement income purposes, you’d most likely be looking at several thousand pounds in tax per year. However, if that £500,000 was saved in a Lifetime ISA, you could take the whole lot tax-free. There would be zero tax payable on lump-sum withdrawals or income withdrawals. Over time, the tax saving could be substantial.

All things considered, the Lifetime ISA is a very powerful investment vehicle. Not only can it potentially boost your wealth significantly, but it can also save you a fortune in tax. If you’re under 40 and eligible to open an account, I think you’d be mad not to.

The post Under 40? I think this is the smartest financial move you can make appeared first on The Twelfth Magpie.

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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.

However, as more providers have started to offer the Lifetime ISA, over the last few years take-up has gradually increased. Should you join this trend and open one today? 

Is a Lifetime ISA right for you? 

If you are aged 18-39, you can open a Lifetime ISA. Unfortunately, if you are over 39 you can’t, although if you already own one, you can continue to contribute to your savings pot till age 50. 

If you do fall within the age bracket, you can save up to £4,000 every tax year, and the government will add a 25% bonus on whatever you save. So, if you are putting away that full amount every year, the government will give you £1,000 of free cash — not bad. 

The big drawback is that you can only use this cash for one of two reasons. Either buying a property for the first time or funding your retirement. What’s more, Lifetime ISA investors can only use funds to buy a property for the first time, if the value of the property is under £450,000. Otherwise, you have to wait until you hit 60 to access the funds. Withdrawals for any other reason will cost you 25%.

The Lifetime ISA does have its drawbacks, but the prospect of £33,000 worth of free cash is alluring. Overall, if you’re eligible, I think it’s worthwhile opening one to take advantage of both the government cash bonus and tax-free nature of the product. 

Cash or stocks? 

The next question. Is it better to open a cash or stocks Lifetime ISA? I believe the answer is relatively straightforward. At the time of writing, the best Cash ISA interest rate available is just 1.5%, below the current inflation rate. 

By comparison, you can achieve a high single-digit to double-digit annual return by investing in stocks. If you have just opened your first Lifetime ISA at age 18, it certainly makes sense to go down this route.

Indeed, a saver putting away £4,000 a year and receiving that £1,000 government bonus between ages 18 and 60 would, according to my calculations, be able to accumulate a pension pot worth £2.3m. This is assuming the money is invested in a low-cost FTSE 250 tracker fund returning 10% per annum.

If the saver put the money in a low-cost FTSE 100 tracker fund, they would still be able to achieve a fantastic return. The UK’s leading blue-chip index has returned around 7% per annum for the past decade. Assuming this rate of return continues for the next 39 years, £5,000 of contributions per annum, including the government bonus, would leave the saver with a pension pot of nearly £1m. 

These numbers speak for themselves. It makes a lot of financial sense to open a Lifetime ISA today. 

The post Should you open a Lifetime ISA today? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no 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.

The product provides a 25% government bonus on all amounts invested up to the maximum allowance of £4,000 per year.

This could mean that a sizeable bonus is on offer for investors who decide to open a Lifetime ISA. This may have a significant impact on their long-term returns and financial position.

25% return opportunity

For an investor who has £1,000 to invest in the FTSE 100 per year, a £250 bonus could be extremely appealing. It means that they will have an initial 25% return on their capital, while providing a larger amount from which to generate additional returns.

With the bonus being payable between the ages of 18 and 50, after which no contributions can be made to a Lifetime ISA, the impact of the bonus on an investor’s nest egg could be significant.

For example, without the bonus, a £1,000 annual investment in the FTSE 100 that delivers a 7% annualised return would be worth £119,000 by the time an investor reaches age 50. By contrast, a Lifetime ISA’s 25% bonus means that an investor’s nest egg would be worth £149,000 by age 50, assuming the same returns are generated from the FTSE 100.

Simplicity

As well as an investor having the potential to generate significantly higher returns from a Lifetime ISA versus a Stocks and Shares ISA or bog-standard share-dealing account, the process of opening and managing the product is also relatively straightforward. In fact, a Lifetime ISA operates in much the same way as a Stocks and Shares ISA in terms of how trades are undertaken and the types of investments that can be made.

As such, it offers a simple means of gaining exposure to the stock market. This could mean that its 25% government bonus, and the investment potential that it offers over the long run, is available to a wide range of investors.

FTSE 100 appeal

Of course, it may be possible to generate even higher returns than those offered by the FTSE 100. At the present time, there are a number of stocks that appear to have wide margins of safety. They could therefore offer impressive capital growth potential. Likewise, a wide range of FTSE 100 stocks are forecast to pay growing dividends in the coming years. This may mean that their total returns exceed those of the index – even if they are only able to post modest capital gains over the long run.

As such, while the appeal of a Lifetime ISA is high due to its 25% government bonus, the FTSE 100 could provide an investor with the opportunity to generate a sizeable nest egg by the time they retire. Therefore, now could be the right time to start buying large-cap shares through a Lifetime ISA with the intention of holding them for the long term.

The post Have £1,000 to invest in the FTSE 100? I’d grab a Lifetime ISA’s 25% return right now appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Peter Stephens 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.

Yet with the average Cash ISA paying just 1.32% in interest right now, holding a large proportion of your wealth in one could be a huge mistake, in my view, particularly if you’re saving for the long term. I say this because UK inflation came in at 2% in June, and has averaged close to that all year, meaning that any money sitting in a Cash ISA is effectively losing value over time.

Of course, having some cash savings is important. Cash gives you options and is essential for emergencies. However, with interest rates of just over 1% on offer right now, Cash ISAs have little appeal, to my mind.

The Lifetime ISA

Personally, I’m a much bigger fan of the Lifetime ISA. This has several major advantages over the cash variety.

First, unlike the Cash ISA, the Lifetime ISA enables you to hold a wide range of growth investments such as stock and funds. This means that it’s possible to earn a much higher return on your money.

For example, in a Lifetime ISA, you could hold a selection of FTSE 100 dividend stocks such as Royal Dutch Shell and Lloyds Bank. Right now, these stocks offer dividend yields of 5.8% and 6% respectively – over four times the average Cash ISA interest rate.

Alternatively, you could buy an investment fund such as Fundsmith Equity fund. This particular option has returned over 70% in the last three years alone, although past performance is no guarantee of future performance.

A 25% risk-free return

Yet where the Lifetime ISA really comes into its own is the fact that for every pound you contribute, up to £4,000 per year, the government will add in 25p for you. Put in £100 and you’ll pick up £25 for free. Put in £1,000 and you’ll pocket £250 for free. Contribute the full £4,000 allowance and you’ll pick up a huge £1,000 for free! That’s a 25% return for doing absolutely nothing. That sure beats the 1% on offer from Cash ISAs, in my view.

What’s the catch?

Now, of course, a great deal like this doesn’t come without a catch. There are a few important details you need to know about. Firstly, you can only open a Lifetime ISA if you’re aged between 18 and 40. Secondly, you can’t withdraw your money (without harsh penalties) until you either turn 60 or buy your first property. In other words, the Lifetime ISA is designed to help you save for your first house or for retirement. As such, it won’t be for everybody.

However, if you are saving for retirement, or for your first home, it could certainly be worth considering as a savings vehicle. A risk-free 25% return plus the opportunity to grow your money through stocks and funds certainly beats 1% from a Cash ISA, to my mind. 

The post Forget 1% from a Cash ISA. I’d pick up 25% risk-free from this ISA appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Edward Sheldon owns shares in Royal Dutch Shell and Lloyds Banking Group and has a position in Fundsmith Equity. 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.

Government bonus

Where the two accounts differ, though, is with regard to the availability of a government bonus. For every £1 invested in a Lifetime ISA, the government pays a bonus of £0.25. Since up to £4,000 can be paid into a Lifetime ISA each tax year, this means that a £1,000 annual bonus could be available. With this on offer over a 33-year time period (the government bonus is paid from age 18 until an individual reaches 50 years old – at which point no further contributions can be made into a Lifetime ISA), there is an additional £33,000 in bonuses on offer.

By contrast, a Stocks and Shares ISA doesn’t have a government bonus. As such, an investor who’s between the ages of 18 and 39 (and is therefore eligible for a Lifetime ISA) may wish to pay their first £4,000 per year into a Lifetime ISA before contributing to a Stocks and Shares ISA. Doing so could provide them with up to £33,000 in bonuses over their lifetime.

Return potential

The impact of the government bonus on an individual’s financial prospects could be significant. For example, an individual who has £4,000 to invest in the FTSE 250 each year and does so between the ages of 18 and 50 could have a nest egg of £2.1m by the time they are aged 60. This assumes they obtain an annualised total return of 9% (which is in line with the FTSE 250’s total returns in the last 20 years), and they don’t make any withdrawals until they’re aged 60.

By contrast, investing £4,000 per year in a Stocks and Shares ISA between the ages of 18 and 50 would produce a nest egg of £1.7m by the age of 60. As such, while an additional £1,000 per year in government bonuses may not seem to be all that significant, the impact of compounding over a long time period could mean it has a major impact on your financial position.

Drawbacks

Of course, a Lifetime ISA is more restrictive than a Stocks and Shares ISA. As mentioned, contributions to the former cannot be made after age 50, while withdrawals are subject to a 25% penalty if undertaken before age 60, or used for any purpose other than the purchase of a first home. As such, a Stocks and Shares ISA is worth having in case capital is required before you retire.

However, a Lifetime ISA could offer significantly greater returns in the long run. As such, it may be worth maximising your Lifetime ISA allowance in order to obtain the government bonus, and using a Stocks and Shares ISA for any additional capital that’s available to be invested in the stock market.

The post Lifetime ISA vs Stocks and Shares ISA: which could make you a millionaire first? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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.

Cash savings

For my day-to-day bank account, I use a Santander 123 account. I also use this account as my ‘emergency fund’ meaning I keep enough money in it to cover around three months of expenses.

The advantage of this account is that it pays interest of 1.5% p.a on balances up to £20,000. So, that means I’m regularly picking up interest on my money that is sitting there for day-to-day use and for emergency savings.

Additionally, the Santander 123 account also provides cash back of between 1% and 3% on household bills paid by direct debit, which means I receive a little bit of extra money in my pocket every month just for paying my regular expenses such as gas, electricity and mobile phone. 

Stocks and Shares ISA

Next, I have a Stocks and Shares ISA set up and in this account, I own a portfolio of dividend stocks. These are stocks that give me cash payments on a regular basis. For example, some of the stocks I own include Royal Dutch Shell, Lloyds Bank, Legal & General Group, and Unilever – which all pay their shareholders generous cash dividends. 

The beauty of this strategy is that I receive cash payments throughout the year from my dividend stocks for doing absolutely nothing. The dividend yields on the stocks I own are also far higher than the interest rates available on cash savings accounts right now. For example, Lloyds currently has a yield of around 5.5%, which is over three-and-a-half times the best savings account rate. Moreover, all this dividend income is tax-free because the stocks are held within an ISA, and I can access it whenever I want because this ISA is extremely flexible. 

Lifetime ISA

Finally, I’m also putting money away for retirement in a Lifetime ISA. I won’t be able to touch this money until I’m 60, but I’m fine with that. 

The reason I’m putting money into a Lifetime ISA is that for every pound I put in up to £4,000 per year before age 50, the government will throw in an extra 25p. So, if I put in £4,000 this year which I plan to do, I’ll receive a bonus of £1,000 from the government. That’s no doubt an attractive proposition in the current financial environment. Since I opened my Lifetime ISA early last year, my money has really grown quickly due to the generous top-ups from the government.

So, as you can see, there are plenty of ways in which you can boost your savings right now. The key is to look outside regular savings accounts and be open to different wealth-building ideas.

The post 3 ways in which I’ve grown my savings in 2019 (and you can too) appeared first on The Twelfth Magpie.

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• With a 7% yield, is this dividend share a no-brainer?
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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Edward Sheldon owns shares in Royal Dutch Shell, Unilever, Legal & General Group, and Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended Unilever. 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.

Yet with the right strategy, a £1m ISA portfolio is certainly achievable, even if you’re not on a high salary. In this article, I’ll explain my own simple three-step ISA millionaire strategy which I’m convinced can get me to the magical £1m mark in time.

Step 1. Opening the right ISA

The first step in my ISA millionaire strategy involves putting money into the right ISAs. Here, I’ve ignored the Cash ISA and I’ve opened both a Stocks and Shares ISA and a Lifetime ISA.

The advantage of these ISAs is that, unlike the Cash ISA, they enable me to hold a wide range of growth assets such as shares and funds. These kinds of assets are likely to get me to the £1m mark way faster than cash savings simply because their returns are so much higher over the long run.

The Lifetime ISA also comes with 25% bonuses from the government on contributions up to £4,000 per year, which will help me turbocharge my savings even more.

Step 2. Regular contributions

The second step in my ISA millionaire plan involves contributing as much money as I can each month into my ISAs. Here, I prioritise the Lifetime ISA and max out the £4,000 yearly allowance as early as I can each year in order to pick up the bonus £1,000 and put that money to work.

I don’t expect to be able to use up the overall £20,000 ISA allowance every year. However, I figure that if I can save 10% to 20% of my income every month, I’ll be regularly getting closer to the £1m mark.

Step 3. Choosing the right assets

The third and final step involves choosing the right mix of assets to grow my money over time. Here, I’ve put approximately 70% of my money into FTSE 100 dividend stocks and the remaining 30% in growth investments. 

The dividend stocks provide me with regular dividend income which I can reinvest to compound my wealth, and they also provide me with a degree of security. Overall, I’m aiming for returns of around 7% to 8% per year from this part of the portfolio, with over half of that return coming from the dividend income. By contrast, the growth section of the portfolio, which is a mix of global growth funds (Fundsmith, Lindsell Train etc.) and smaller growth companies, is designed to generate higher returns of around 10% to 15% per year.

Overall, this strategy is designed to generate a return of 9%+ per year without taking on too much risk. Running the maths, £100 invested every week and growing at 9% per year grows to £1m in 34 years, while £200 invested every week and growing at 9% per year hits one million in just 27 years.

So, as you can see, building a £1m ISA portfolio is certainly achievable. The right ISA, regular savings, and an effective asset allocation is all it takes.

The post Here’s my simple 3-step plan to build a £1 million ISA appeared first on The Twelfth Magpie.

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Edward Sheldon has a position in the Fundsmith Equity fund and the Lindsell Train Global Equity fund. 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.