Some people might think that trying to become an ISA millionaire within their lifetime is completely impossible. I think it’s the tag of ‘millionaire’ that causes the issue. When I think about a million pounds, it’s a lot of money. But in my opinion, it’s obtainable. I would struggle to achieve this very quickly, of course, but over the course of a few decades, it’s definitely something I think could happen. Although some things are out of my control, here’s my five steps to trying to achieve this goal.
Working backwards
It might seem strange, but to begin with I actually need to look at the end scenario. Let’s say I want my Stocks and Shares ISA to be worth £1m in around 20 years time. If I assume an annual growth rate (that compounds) of 8% from the stocks I buy, then I can work out how much I need to start investing each month. Of course, I have to remember that the 8% return isn’t guaranteed.
In this scenario, it works out at around £1,500 per month. With the ISA allocation of £20,000 a year, this works. It could make me an ISA millionaire by year 22. This is an important starting point so that I can temper my expectations of what I need to do right now to help achieve my goal further down the line.Â
The second step is then to start the process of investing £1,500 per month. If I can’t commit to this, then I can reduce the monthly amount, but in the knowledge that it’ll take me longer to get to the millionaire mark within my Stocks and Shares ISA.
Making progress over time
Third, I need to do ongoing research on the companies that I’m allocating my £1,500 to each month. As I mentioned, it’s not certain that I can achieve an average growth rate of 8% each year and it’s a big assumption that I will. A large part of making this happen is ensuring I pick good quality, sustainable businesses. It’s going to take me at least 20 years to reach my ISA millionaire status, so I at least want companies that’ll be still around.
The fourth step is to rebalance my stocks portfolio within my ISA over time. This is important as in the future, my ISA can become untidy and overly concentrated in a sector or industry. Trimming down some profits or allocating more funds to other companies is a good thing, and can help to keep my overall pot on track in the long term.
The final step is trying to be disciplined in letting my pot build up. I may have taken all the first four steps but then decide after a decade to pull money out for a house purchase or something else. There’s nothing wrong with this if I desperately need the money. But it will really set me back in my big target figure.
ISA millionaire potential
With discipline and a good game plan, I believe I can achieve my end goal. It will take years, but as the old saying goes, “the steeper the climb, the better the view”.