Here’s how I’d use a Stocks and Shares ISA to aim for a million

This writer thinks taking the right long-term approach to investing could help him turn his Stocks and Shares ISA into a goldmine. Here’s how.

| 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.

Aerial shot showing an aircraft shadow flying over an idyllic beach

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.

The idea of becoming a stock market millionaire has a certain appeal. I also think it is possible, even from a standing start and with no savings.

But turning an ambitious goal like that into reality takes more than just positive thinking and optimism. It needs a realistic plan of action. I reckon I could use a Stocks and Shares ISA to aim for a million.

Here’s how.

Setting the right timeframe

To begin, note that this is a long-term goal. I would not expect to start with nothing and become a millionaire in a short time. Instead my timeline here is in decades.

What is the benefit of such a long-term approach to investing?

As I see it, it means I can do the work upfront of putting aside money and finding shares to buy. Then, if I choose the right shares, I can let time do the heavy lifting of turning my Stocks and Shares ISA into a portfolio of far higher value than the money I put in.

Investing with a long-term vision

Speaking of putting money in, how much would I invest? Everyone’s financial circumstances are different and any smart investment approach needs to reflect that. In this example, I imagine investing £850 each month.

To do that, I would set up a Stocks and Shares ISA – there are lots to choose from – then start putting my money into it regularly.

Ongoing target as I aim for a million

Talking about getting my ISA value up to seven figures is ambitious. Breaking that down into a smaller series of targets could help me focus.

To achieve that goal, what would I need to do? If I put in £850 each month and can grow my Stocks and Shares ISA at a compounded annual rate of 8%, it ought to be worth a million pounds after 28 years. As I said, this is a long-term plan. Becoming a millionaire takes time and effort.

Looking for shares to buy

So what sort of shares might let me achieve that average annual compound annual growth rate of 8%? I would spread my Stocks and Shares ISA over a few different choices, so that disappointing performance by one would have a limited effect on my overall performance.

The 8% could come from either growth, dividends (that I would reinvest) – or both. An example of a share I own that I hope could give me both is Reckitt (LSE: RKT).

It sells consumer goods, a market I expect to benefit from long-term customer demand. Thanks to its collection of premium brands such as Vanish, it is able to charge a higher price for its products than unbranded competitors. That is good for profits.

The company’s shares have performed weakly in recent years. In part that is due to a disastrous acquisition of a nutrition business and I see a risk that it will continue to dog Reckitt’s overall performance even though the company has slimmed it down considerably.

Still, I saw the share price weakness as a buying opportunity and hopefully will receive regular dividends while I own the shares — and aim for a million!

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.

C Ruane has positions in Reckitt Benckiser Group Plc. The Motley Fool UK has recommended Reckitt Benckiser Group 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »