The Stocks and Shares ISA is a financial product ignored by many people in the UK. According to figures from HMRC, in the 2018-2019 year, only 2.4m people across the nation contributed to one. Meanwhile, a survey a few years back found that around 40% of the population don’t even know what this ISA is.
That’s a real shame. From a wealth-building perspective, this version of the ISA is very powerful. Contribute regularly, and it could make you an absolute fortune.
The Stocks and Shares ISA: the potential for high returns
A Stocks and Shares ISA won’t make you wealthy by itself. Ultimately, it’s just a tax wrapper. What can make you very wealthy, however, are the investments you can select within it.
You see, with a Stocks and Shares ISA, you can invest in a wide range of high-growth investments, such as funds, investment trusts, exchange-traded funds (ETFs), and shares.
So, whereas with a Cash ISA, where you can only make a max of about 1% per year on your money, with a Stocks and Shares ISA it’s possible to generate returns of 10, 20, or even 30 times that!
Powerful investment options
The investment options you have are also amazing. One is to invest your money in funds, such as the popular Fundsmith Equity. This fund, which is run by Terry Smith – who’s also known as ‘Britain’s Warren Buffett’ – has turned a £10k investment into about £50k in less than a decade.
Another option is an investment trust. One of the most popular right now is Scottish Mortgage. This particular trust (which has nothing to do with Scottish mortgages and actually owns growth stocks like Amazon and Tesla) has doubled investors’ money in just two years.
A third option is to invest in individual shares. This approach requires more work, but the rewards can be greater. For example, had you invested £5k in real estate website company Rightmove a decade ago, that money would now be worth about £50k. Similarly, had you invested £5k in online supermarket Ocado five years ago, that money would now be worth about £32k.
And, of course, all your investment gains in a Stocks and Shares ISA are completely tax-free. Make a £20k gain on a stock and you won’t have to pay a penny in Capital Gains Tax to HMRC.
Make a million or more
How much could you make with a Stocks and Shares ISA? That depends on how much you contribute (you can put in up to £20,000 per year) and the rate of return you make on your money.
But, for example, if you were to invest £10k per year (about £833 per month) and earn 10% per year on your money, my calculations show that you’d be looking at a million-pound portfolio (with zero tax to pay) in around 25 years. Start investing at 40 and, by 65, you could be a member of the exclusive ‘ISA Millionaire’ club.
That’s the power of the Stocks and Shares ISA. If you’re serious about building your wealth, this ISA is definitely worth a look.