Setting up a monthly investment plan to put £200 into a Stocks and Shares ISA may not necessarily produce high returns in the short run.
However, over the long run, steadily feeding money into the stock market is a tried and tested way of building wealth. It could even help to make you a million at a time when few other mainstream assets offer attractive returns.
Stocks and Shares ISA investing
Opening a Stocks and Shares ISA is a very straightforward process. These accounts are virtually the same as a regular dealing account, although there are a few rules about what you can and can’t own.
For example, investors can only own stocks that trade on a recognised exchange in a Stocks and Shares ISA. This essentially means any stock that trades on a developed market stock index. That still leaves a universe of several thousand investments.
If you’re planning to invest several hundred pounds a month into a Stocks and Shares ISA, the best strategy may not be to own individual stocks.
Instead, stock market funds might be a better option. These funds allow investors to buy a broad range of shares at the click of a button. What’s more, costs today have fallen to levels never before seen in the industry.
The most basic type of fund is a simple stock market tracker. A market tracker, such as a FTSE 100 or FTSE 250 one, only tracks the underlying stock index. This means it’s highly unlikely that the fund will underperform the market, or buy illiquid investments, which later come back to haunt it.
Steady returns
Over the past three-and-a-half decades, the FTSE 100 has returned around 8% per annum. Meanwhile, the FTSE 250 has returned nearly 12%. Buying these funds today in a Stocks and Shares ISA might seem like a high-risk bet. Indeed, the near-term outlook for the stock market is highly uncertain.
However, the index has a sound track record of recovering from every one of its previous downturns. With that being the case, buying undervalued shares today could be a good move for investors with a long-term outlook.
Make a million
Investing £200 a month in the FTSE 250 via a Stocks and Shares ISA could you help build a £1m nest egg over several years. At an annual rate of 12%, it would take 33 years of investing £200 a month to build a £1m ISA.
This return might not come in a straight line. The index has seen many peaks and troughs over the past few decades. Still, as noted above, it has always recovered losses before going on to make new highs.
This is why it makes sense to use the index’s cyclicality to your advantage and set up a regular investing plan to buy stocks at low levels as well as high. Doing so could increase your chances of making a million in a Stocks and Shares ISA from the stock market.