There are around 2,000 Stocks and Shares ISA millionaires in the UK. The richest, with more than £6m, started as soon as they could.
Time is the secret to building long-term wealth, rather than trying to time the market. And the early years can count the most, as the cash stashed away has much longer for compounding to weave its spell.
Here’s how compounding works. Each year, we buy more shares with our dividend cash. So if we get a dividend yield of 5%, we can buy 5% more shares, ending up with 105% of the number we started with.
Then the next year we get to buy an extra 5% of that 105%, and so it builds up year after year.
Pretty good year
And sometimes, it just happens that we’re in a very good time to get started with a Stocks and Shares ISA. Are we in one of those times now?
After the poor performance of UK shares in the past 10 years, I reckon we could be looking at the best time for new ISA investors for more than a decade.
Why do I say that? Just look round the financial headlines. It’s all doom and gloom. Everyone seems to be so pessimistic today.
Pessimism is good
I think one of my favourite investors would be filling his boots today. It’s Sir John Templeton, famed for going against the crowds when they were bearish.
At the outbreak of the war in Europe in 1939, he borrowed $10,000 from his boss and put $100 into every share he could find priced at $1 or less. In four years, he quadrupled his money.
Now I would never borrow money to invest. But it takes great courage to put your money where your mouth is like that, don’t you think?
Buy cheap shares
The best time to get started with a Stocks and Shares ISA, I reckon, is as soon as possible. Every extra year in the early years should raise our chance of making it to millionaire status.
We might be unlucky and start when shares are expensive, and they then fall. But through history, we’ve had far more periods when shares have gained than lost. And the longer the period, the more gains we see.
Wrong?
I might be wrong, and shares might be set for another bad decade. The FTSE 100 has risen only 13% in the past 10 years, and it could still do that again.
But when I see a full 23 stocks on the FTSE 100 on dividend yields of 5% or above, with the top nine forecast to pay 8% or more, I think shares are cheap.
I doubt I’ll actually make a million. Most of those ISA millionaires have been able to invest up to their full limit every year, and I don’t have the cash to do that.
But the more I can invest, and the longer I can leave it there, the more chance I should have.
