Investing within an ISA is a very effective way to create wealth. With these tax-efficient accounts, it’s possible to build up a substantial amount of capital over time, even if one is starting with a relatively low amount of savings.
Here, I’m going to explain how I’d aim to build a £200k portfolio in under 10 years if I was just beginning my ISA journey today. These are the moves I’d make in an effort to go from zero to hero.
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.
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Choosing the right ISA
So, the first thing I’d do is open a Stocks and Shares ISA with a reputable provider such as Hargreaves Lansdown, AJ Bell, or Interactive Investor.
The reason I’d select this type of ISA is that it’s a far more powerful investment vehicle than the Cash version.
With a Stocks and Shares ISA, I’d have access to investments that could really turbocharge my wealth over the long run such as stocks, funds, and exchange-traded funds (ETFs).
Regular savings
Once my ISA was open, I’d set up a regular savings plan.
Here, I’d crunch the numbers to work out how much I’d need to save per month to achieve my goal, factoring in my potential investment returns.
As an example, I calculate that if I was able to achieve a return of 8.5% per year on my money (more on this below), I’d need to save around £1,200 per month into my ISA to hit £200k in less than 10 years.
Once I knew how much I wanted to save every month, I’d pay this amount into my ISA as soon as I was paid (paying yourself first is one of the most effective ways to save money).
Investing to build wealth
As for how I’d aim to generate a return of 8.5% per year on my savings, I’d invest in the stock market.
Over the long term, the stock market has produced returns of around 7-10% per year. So, I reckon an annualised return of 8.5% is achievable over a decade.
The thing is though, to achieve that kind of return, I’d have to build a decent portfolio.
A handful of stocks isn’t going to cut it. That’s because, if one or two of these stocks underperformed, my overall returns could be significantly lower than 8.5% per year.
So, I’d do my research – with the help of experts like The Motley Fool – and set about building a diversified stock portfolio (at least 15 stocks) that includes a mix of ‘blue-chip’ UK businesses, smaller UK growth companies, and well-known, dominant businesses that are listed overseas.
I’d aim to invest in world-class companies such as London Stock Exchange, Diageo, Rightmove, and Apple, which all have amazing long-term track records when it comes to generating wealth for investors.
Of course, there’s no guarantee that I’d hit the £200k mark in under 10 years with this approach to investing. The stock market can be volatile at times.
However, history shows that stocks tend to outperform most other assets over the long run.
So, I’d be willing to give this wealth-building strategy a shot.
