I see my Stocks and Shares ISA as my main place where I’m trying to build my wealth. It’s easy for me to check and see the current valuation, and also is easy to regularly pay money into it each month. I like to try and keep all my shares here as it enables me to not pay capital gains tax on any profits I make. This makes is easier over time to build up a sizeable investment pot.
Different factors to consider
To go about building a Stocks and Shares ISA worth £250k, I need to go about setting some parameters. An important one is the time period involved. A £250k aim in a few months is technically impossible. If I’m happy to wait for a decade or more, then it becomes a lot easier to try and model things around that.
Another factor I need to think about is how much I can afford to invest at the beginning, and then over time. The Stocks and Shares ISA has a subscription limit of £20k per year, so this is the maximum I can put in. But I don’t need to do this all in one go. Rather, I could invest just over £1,600 a month instead. If this is too much for me, then I don’t have to feel pressured to put in the full £20k a year. I don’t get penalized for not using the full allowance each year.
The final parameter I want to think about is what risk tolerance I’m happy to take on. The general correlation is that a higher return comes with higher risk. So I could get to a Stocks and Shares ISA worth £250k quicker via higher risk growth stocks. Yet I might not feel comfortable with the high drawdowns or potential losses.
A Stocks and Shares ISA worth £250k
Once I’ve got it clear in my head what parameters I’m happy to stick to, there are several ways I can go about making my investment pot grow.
The quickest way would be to invest £20k at the start of each ISA season (in early April). This would allow the maximum time for that allocation in my Stocks and Shares ISA to grow each year. Within this, I’d look to invest in high growth stocks. Assuming an 8% annual growth rate, this would get me to my £250k goal after nine years.
Another way would be to look to invest £1,000 a month into my ISA, with a blend of growth stocks and more conservative stocks. This would lower the annual return, and the lower investment amount would increase the time needed to reach £250k. The benefit here would be that my risk would be lower. Further, it would hurt my cash flow less each month by investing £1,000 instead of having to fork out a large lump sum.
Finally, I could decide to build my Stocks and Shares ISA via income paying stocks. If I invested £1,000 a month into companies that offered a dividend yield of 5%, I could reinvest this income back into stocks. I could also hopefully benefit from some capital appreciation as well.
No allocation fits everyone, but from considering a few examples I can see which one fits best for me.