Could starting a Stocks & Shares ISA be my single best financial move ever?

Christopher Ruane explains why he thinks setting up a seemingly mundane Stocks and Shares ISA could turn out to be a financial masterstroke.

| More on:

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 mixed-race couple sat on the beach looking out over the sea

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.

Different people have their own lifetime best financial move. It might be starting a business, or spotting an unattributed Old Master in a provincial antique shop or auction house. What about the simple move of starting a Stocks and Shares ISA?

Perhaps, surprisingly, I think that could yet turn out to be the best financial move of a lifetime. Let me explain why.

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 power of long-term investment

Imagine I invested my annual Stocks and Shares ISA allowance of £20,000 each year for three decades.

That move alone would mean me putting aside £600,000. That is a significant amount!

By tucking it away in an ISA and investing it, I would be putting the money to work rather than frittering it away on daily treats from pricy drinks to posh meals.

But imagine something else. By investing it well, I could compound the value of my investment at 10% annually. Doing that, from a standing start today, my Stocks and Shares ISA could be worth over £3.6 million in 30 years!

That sounds like it could well be the financial move of a lifetime.

Four things to do

To get there, there are four things I would need to do. The first one is something I could do today – set up a Stocks and Shares ISA. There are lots of options available, so I would choose the one that best suited my own needs.

My second move would be coming up with the £20,000 annually to invest. Even if I could not manage that much, I would start with what I could, and try to build on that. I would still use the same investing approach, but if I invested less, my returns would be proportionately lower.

Thirdly, I would need to find shares to buy. I would keep my Stocks and Shares ISA diversified across a range of different shares. Finally, I would monitor my ISA over time to consider whether the investment case for any of my holdings had changed.

Finding shares to buy

In my example above, I discussed a 10% compound annual growth rate as an example. My Stocks and Shares ISA might do even better if I found shares like Alphabet (up 148% in five years) or London-listed Kainos (up 74% in five years).

Even a 10% annual return though, is harder to achieve over the long term than it may sound.

One share I hope might help me achieve that sort of return is M&G (LSE: MNG). It has the sorts of advantages I look for as a long-term investor, namely a large, enduring market, a strong brand, and a big existing customer base.

The company has grown its dividend annually in recent years and currently the dividend yield stands at 9.9%.

Since its 2019 listing though, the M&G share price has fallen 12%. So it has not delivered a 10% compound annual growth rate lately. I see ongoing risks, such as tight household budgets leading the asset manager’s customers to withdraw some funds, hurting profits.

But over time, I remain upbeat about the outlook for M&G. If I can buy the right companies for my Stocks and Shares ISA, I think it could end up being a boon for my personal finances.

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. C Ruane has positions in M&g Plc. The Motley Fool UK has recommended Alphabet, Kainos Group Plc, and M&g Plc. 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

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »