I believe almost everyone can realistically build a £1m Stocks and Shares ISA in their lifetime. It might sound unrealistic at first glance, but its not.
Firstly, the easiest way to build a £1m Stocks and Shares ISA is to start as early as possible. The longer you have to invest, the more time your investments will have to compound and grow.
How is a £1m Stocks and Shares ISA possible?
The average long-term stock market return is said to be around 7%. If I have 35 years before I want to retire, at a 7% annual investment return, I calculate that I would need to invest £555 per month.
As an experienced investor, I’ve managed to return more than 7% per year. I’d say many investors could increase their investment returns by further reading and learning. Conservatively, I think it’s quite possible to make at least a 10% annual return by buying quality UK shares and being disciplined enough to hold them for several years.
So, lets now assume a 10% investment return, and 35 years before retirement. To build a £1m Stocks and Shares ISA, I calculate that I would only need to invest £270 per month, so roughly just £60 per week.
What to invest in?
After setting the investment amount, the next part of the plan is to decide what to invest in. Here you have several options. Investing in a Stocks and Shares ISA can be a minefield if you don’t know where to look.
Part of my Stocks and Shares ISA is invested in managed funds, which is where a fund manager decides which investments to hold in the portfolio. This can be a decent option for a hands-off approach.
I like funds where the fund managers have their own savings invested in them, also known as ‘skin in the game’. Currently, my favourite managed fund is Fundsmith Equity Fund, which is managed by veteran investment manager Terry Smith.
Part of my Stocks and Shares ISA is invested in individual companies. Generally, there are three styles of stock investing – quality, value, and momentum. I prefer companies that demonstrate high quality attributes combined with stock price momentum.
Smaller companies can offer fantastic opportunities for private investors. They tend to be less researched by the large investment houses and banks. It’s possible to find undervalued, good quality companies that have the potential to grow into the giants of tomorrow.
Other points to consider
When setting up a long-term investment plan, it’s important to be aware of pitfalls. Stock markets fluctuate and in short periods they can be quite volatile. When investing for the long term, it’s important to try to ignore these daily ups and downs.
In fact, you can take advantage of shorter-term volatility by investing regularly. By making regular purchases in your Stocks and Shares ISA, you will automatically be buying shares when share prices are depressed. This is known as pound cost (or dollar cost) averaging and is a good method for long-term investing, in my opinion.
So, there we have it. With a decent plan, discipline, and perseverance, that’s how I plan to build a £1m Stocks and Shares ISA with just £60 per week. The next question will be how I plan to do it in 25 years instead of 35 years…