Here’s how I’d aim to turn an empty Stocks and Shares ISA into £1m

Building a million-pound Stocks and Shares ISA from scratch might seem like an ambitious goal. Our writer explores how it could be possible.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

According to HMRC figures, there are estimated to be around 2,000 ISA millionaires in the UK.

These investors have likely been adding money to their Stocks and Shares ISA for many years. But if I was starting from zero, what would it take to reach millionaire status? That’s what I’ll aim to demonstrate today.

ISA limits

I’d say there are three main factors in targeting a million-pound portfolio. First, it starts with how much an investor can add to their ISA.

Should you invest £1,000 in Sainsbury's right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Sainsbury's made the list?

See the 6 stocks

Since 2017, the annual ISA allowance has been £20,000. This is the maximum sum an investor can contribute per tax year. Not everyone will be able to reach this maximum every year, but I’d attempt to fill it as much as possible.

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.

Average returns

The next part of the equation is the rate of return. That’s how much an investment can grow every year. Historically, stock market investments have averaged around 8-10% annually.

It’s important to note, as that’s just an average, the actual return can often be much greater or much lower. For instance, the S&P 500 rose by a whopping 30% in 2013. But last year, it fell by 19%.

Similar swings in performance can be found in the UK’s FTSE 100. But I feel that accepting these swings is the price to pay to reach millionaire status.

How long will it take?

Finally, the third factor to consider is duration. Reaching a million-pound ISA won’t happen overnight. It will likely take many years.

Let’s assume that if I can maximise my ISA allowance every year and achieve an average 10% a year return, I calculate it would take 19 years to turn an empty ISA into a £1m.

That means even if I start at the age of 40, I could retire with a £1m pot less than two decades later.

There are a few things to bear in mind though. Just because historically the average stock market return has been around 10%, it doesn’t mean the coming decades are guaranteed to do the same.

It could be higher or lower. So I consider it prudent to make some estimations based on a range of outcomes.

Similarly, not all investors would be able to maximise their Stocks and Shares ISA allowance every year.

The following table shows how many years it could take to reach a £1m ISA, based on this range of assumptions.

 Annual amount invested8% 10% 12%
£5,00037 years3228
£10,000292523
£20,000211917
Years to reach £1m

No guarantees

Another important point to consider is that the government could change ISA rules in the future. I can’t imagine the maximum allowance being lowered as it’s designed to incentivise long-term saving. But there’s no guarantee with this.

Finally, note that £1m today might seem like a lot of money. But as prices rise, inflation can reduce its spending power in the future.

Overall, my own plan to reach a £1m ISA is to maximise my annual contributions. And by carefully selecting a basket of top shares, I’d aim to achieve gains of at least 12% a year.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel 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.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

After collapsing 28% today, are Bunzl shares too cheap to ignore?

A poor trading statement has sent Bunzl shares to multi-year lows. Could now be a good time to consider investing…

Read more »

Investing Articles

These 5 stocks could earn £1,600 of annual passive income in a £20,000 ISA

Harvey Jones shows how to generate a high and rising passive income by buying a balanced mix of high-yielding FTSE…

Read more »

Young woman holding up three fingers
Investing Articles

3 things I like about Greggs shares

Greggs shares have tumbled by more than a third over the past year. But this writer has no plan to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Nvidia stock: beware the bear market rally

Andrew Mackie argues that investors should tread carefully before investing in Nvidia stock, as the worst of the sell-off could…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Up 73% in one year, is this the best value stock in the FTSE 100?

A brilliant run of form suggests this FTSE 100 giant should no longer make the cut as a value stock.…

Read more »

Investing Articles

The best could yet be to come for UK shares! I’m buying these ones

Amid ongoing stock market turbulence, this writer's been adding selected UK shares to his portfolio. Here's why and what he…

Read more »

Top Stocks

4 UK stocks trading well below book value to consider buying

Sometimes, it pays to be contrarian: who says the UK market has priced a stock precisely right, anyway?

Read more »

Investing Articles

The S&P 500’s 12% off its highs. Is now a good time to buy US shares for an ISA?

Right now, a lot of British investors are wondering whether it’s a good time to buy US shares. Here, Edward…

Read more »