Building a £100k ISA is a common financial goal. Yet most Britons have nowhere near this amount of money in their ISA accounts today (the average account is worth about £33k).
Is there a secret to building a six-figure ISA? I think so. Here’s my take.
Opening the right type of ISA
The way I see it, there are three simple moves that can make a £100k ISA far more obtainable. The first is going with a Stocks and Shares ISA (and maybe also a Lifetime ISA if eligible) as opposed to a Cash ISA.
Returns from Cash ISAs have improved dramatically in the last year or so. But they are still far below what is achievable in Stocks and Shares ISAs and Lifetime ISAs.
For example, had I bought Apple shares within a Stocks and Shares ISA five years ago, I’d now be sitting on a gain of over 200%.
That’s about 20 times the return from the average Cash ISA over the same period.
Contributing regularly
The next key move is making regular contributions, even if they’re only small.
Over time, small contributions can add up. Got £300 a month to commit to an ISA? That’s £3,600 per year. Have £500 per month? That’s £6,000 a year.
With consistent saving, getting to £100k becomes far more likely.
Investing properly
The final step (and this shouldn’t be overlooked) is building a decent investment portfolio. Through a Stocks and Shares ISA, it’s possible to achieve returns of around 7-12% a year over the long term by investing in the stock market.
However, to achieve these kinds of returns, investors need to own a wide range of stocks.
All too often, investors only own a handful of shares. And what happens is that one or two poor performers drag their whole portfolio down, resulting in underwhelming returns.
By owning a portfolio of at least 15 stocks from different areas of the market (e.g. technology, financials, healthcare, consumer goods, industrials, etc), one can limit stock-specific risk and give themselves a much better chance of achieving fantastic returns.
Of course, picking the right stocks can be daunting. After all, there are thousands of stocks that can be invested in these days.
But there are plenty of resources available today that can make this process easier (such as The Motley Fool).
A good place to start could be to invest in a selection of the world’s most dominant businesses. I’m talking about the likes of Apple, Alphabet (Google), and Amazon.
Over the long term, these companies have all delivered strong returns for investors.
£100k is achievable
How long would it take to build a £100k ISA with this three-step approach? Well, it would depend on how much one contributed to their account on a regular basis and the investment returns that were achieved.
And of course, returns aren’t guaranteed. I could lose money as well as make it.
However, as an example, I calculate that if I saved £500 per month into an ISA and generated a return of 9% a year on my money over the long term, I’d hit the £100k mark in a little over 10 years.
