The Stocks and Shares ISA is a powerful investment vehicle. With this type of account, all gains and income from investments are completely tax-free.
Here, I’m going to show how an investor could potentially build up a £100k portfolio by 2030 by contributing just £800 every month into one of these ISAs. Let’s crunch the numbers.
Aiming for a £100k ISA
If an investor was to start contributing to an ISA next month, that would give them 95 months until the end of 2030. Now, 95 contributions of £800 works out to £76,000, which is not an insignificant sum of money.
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Here’s the thing though. If they were to invest that money into the stock market via their ISA, they could potentially build up a much larger lump sum.
Over the long run, the stock market has produced returns of around 7-10% per year. If I take the average of that figure (8.5%) and assume that the investor’s contributions grow at that rate every year (in reality returns would be very different each year and could even fall), they would have more than £100k in their ISA by the end of 2030.
That’s a pretty good result, to my mind, given that the investor was only putting away around £800 per month (roughly £185 per week).
Investing in the stock market
Now as for the investing side of things. There are a number of ways to gain exposure to the stock market these days.
One straightforward approach is to invest in a global tracker fund such as the Vanguard FTSE Global All Cap Index. With this product, investors get exposure to around 7,200 different stocks (from a wide range of countries) at a very low cost. On Hargreaves Lansdown, the ongoing fee here is just 0.23% per year.
Another strategy is to invest in a selection of actively-managed investments funds. The advantage of this approach is that money is managed by a professional manager (although fund managers don’t always beat the market). One popular fund here in the UK is Fundsmith Equity. This is a global fund that has delivered strong returns (far more than 8.5% per year) since its inception in 2010.
A third approach is to invest in a selection of individual stocks. This approach is more time consuming. And it can also be more risky. However, it has several advantages.
Firstly, investors can be selective about the companies they invest in (or avoid). Secondly, it can potentially lead to higher returns. For example, anyone who invested in the likes of Apple, Tesla, or AstraZeneca five years ago has done very well for themselves.
Of course, there’s nothing to stop combining these approaches to investing in the stock market. That’s what I do. I have tracker funds and investment funds in my ISA as well as a wide selection of stocks that I’m excited about.
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.
