At the end of the 2022/2023 tax year, the average ISA balance stood at around £33k. However, averages don’t always tell the full story and there are many people with accounts that are much smaller than this.
Have a small ISA today and keen to build it up to £200k+ in the years ahead? Here’s a simple three-step wealth-building plan to consider.
The right ISA
There are several different types of ISA available today. And some are more powerful than others.
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From a wealth-creation perspective, my preferred accounts are the Stocks and Shares ISA and the Lifetime ISA. These can usually allow us to invest in a wide range of assets and potentially grow money at a fast rate.
For those serious about building wealth, these are the types of accounts I think should be considered. It’s worth noting that money can be transferred from a Cash ISA into one of these ISAs without losing the tax-free allowance.
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.
Regular savings
Once the right ISA’s set up, the next step is to establish a regular savings plan. One of the best ways to do this is to work out how much you can afford to save on a monthly basis and then pay yourself first. For example, if you can afford to save £500 after all expenses, transfer this money into your ISA as soon as you’re paid.
This strategy can be very effective. That’s because it makes saving a priority.
An investment strategy
The final step is to develop – and stick to – a decent long-term investment strategy.
Now, there are many different ways to invest today. Personally, I favour a mix of investment funds and individual stocks. Funds can be a good way to get broad exposure to the stock market and generate steady returns over time. Putting the bulk of a portfolio into these means the chances are they’ll do well in the long run.
Meanwhile, stocks can be a great tool to enhance returns. For example, investing in Amazon a decade ago could have boosted returns significantly.
Now, I still reckon Amazon has lots of potential. But one stock I think could do better over the next decade and is worth considering is Uber (NYSE: UBER).
This company is growing rapidly today. For 2025, revenue and earnings per share are projected to rise 16% and 28% respectively. If it can keep growing, investors could see strong gains in the years ahead. Currently, the company’s market-cap’s only $130bn (versus $2.4trn for Amazon) so there’s lots of room for growth.
Of course, Uber may not continue to grow like this. One risk is competition from Tesla (ie its self-driving taxis).
I’m bullish on the long-term growth story though. It’s worth noting that analysts at Goldman Sachs have a price target of $96 for Uber (60% above today’s share price).
£200k in 12 years?
Putting this all together, I believe this strategy has the potential to create substantial wealth over the long run.
Of course, results will vary depending on the savings plan and the returns generated. But I calculate that if an investor puts £800 a month into a Stocks and Shares ISA and is able to achieve a return of 9% a year, they’ll hit £200k in around 12 years.
