How I plan to double my Stocks and Shares ISA in 5 years

The goal of doubling the value of a Stocks and Shares ISA in a relatively short period of time sounds fanciful but that’s exactly the target I’ve set myself between now and 2026. Today, I’ll explain how I hope to meet this challenge. First, a quick bit of (simple) maths.

Doubling my ISA: what will it take?

To double the value of my portfolio, I need to achieve an annualised return of around 15%. In other words, I need my capital to grow 15% in 2021, another 15% in 2022, and so on. This is how things would look if I used the nominal sum of £1,000.

Compound interest really is a wonderful thing. And this doesn’t include the impact of any reinvested dividends!

So, how do I hit this target?

Clearly, being invested in the best stocks helps. But what makes a company better than others? Everyone will have an idea about this.

A ‘meme stock’ investor would say that AMC Entertainment and GameStop would qualify. I respectfully disagree. Their share prices have certainly ‘popped’ in 2021 but have since flagged. They’re best left to traders, in my opinion. 

Personally, I don’t think I need to take on such risk to get a 15% annualised return. For me, the best ISA stocks are those that are leaders in niche markets, boast fantastic brands, have strong growth potential, and/or generate great returns on the money they invest. I think I have several in my portfolio already. These include kettle appliance maker Strix, equipment manufacturer Somero Enterprises, and online behemoth Boohoo. 

But let’s take a step back here. The fact that something is achievable does not mean it will happen, of course. Let’s briefly look at what things could stop me from achieving my goal.

What could go wrong

Unfortunately, there’s no guarantee my ISA stocks will perform. Last week alone showed just how unforgiving other investors can be with the share prices of Best of the Best and Avon Protection being pummelled. Both have previously scored highly on the things I usually look for.

Even if the companies I own do very well, they could still be held back by general market jitters. These days, investors are getting increasingly worried about rising inflation, for example. And even if this does prove ‘transitory’, there will always be another potential setback waiting in the wings to knock confidence. 

How I can improve my chances

Aside from hoping my stock-picking is on form, there are four other things I think I can do. 

1) Keep investing. This includes periods in which markets head south. It sounds simple but it’s harder to do in practice.

2) Go small. Smaller companies have the ability to grow at rates larger companies simply can’t. This can often lead to a huge uplift in share prices. 

2) Use up my ISA allowance. As well as continuing to invest, it would also be a good idea to use my £20,000 ISA allowance in full. The more money I put to work, the greater the potential impact of compounding.

3) Avoid frothy markets. A final, debatable point is that it might make sense to avoid markets (and companies) where valuations are looking stretched. Having more than doubled over the last year, the US market looks a little too hot to me right now.