ISAs (Individual Savings Accounts) are a great wealth-building tool. With these tax-efficient accounts, even a small amount of money can grow into a large sum, over time.
Here, I’m going to explain how I’d aim to turn £10k in an ISA into £100k. These are the moves I’d make to build up a six-figure account.
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.
The best way to build wealth
In my view, the best way to build up a large amount of capital within an ISA is to adopt a strategy that incorporates both saving and investing.
To state the obvious, saving is the process of putting some money away for the future. But investing, on the other hand, is the process of putting saved money to work in the hope of generating high long-term returns (above those on offer from savings accounts).
The secret to successful investing
Now, for the investing side of things, I’d put my money in the stock market (I’d need either a Stocks and Shares ISA or a Lifetime ISA to do this).
Over the long run, it has delivered returns of around 7-10% per year. That’s way higher than the returns generated by bonds and savings accounts.
However, to achieve these kinds of returns, one needs to build a decent investment portfolio.
History shows that not every stock is going to do well. So it’s important to diversify one’s capital over a range of different companies. That way, if a few shares underperform, one can still potentially generate solid long-term returns.
Building a top portfolio
The good news is that building a diversified stocks portfolio is very easy. Not only are there products like index funds that provide exposure to lots of different stocks for a low cost but there are also high-quality research services (like The Motley Fool) that can help investors build top-notch portfolios.
So I’d do my research – with the help of some experts – and set about building a diversified stocks portfolio that has exposure to a range of different companies.
I’d aim to invest in world-class businesses such as financial markets powerhouse London Stock Exchange Group, tech giant Alphabet (Google), Johnnie Walker and Tanqueray owner Diageo, and payments firm Mastercard.
All of these companies have amazing track records when it comes to generating wealth for investors over the long run.
Getting to £100k
How long would it take me to turn £10k into £100k using this strategy?
Well, it would depend on how much I saved every month and the level of return I was able to generate from my investments.
However, I calculate that if I saved £500 a month into a Stocks and Shares ISA and generated a return of 9% a year on my money over the long term, I could turn £10k into £100k in less than nine years.
