Making a million in a Stocks and Shares ISA is far more realistic than many investors believe. Obviously, the economic conditions today make for a choppy stock market. But zooming out and taking a long-term perspective reveals a perfect track record of recovery from every crash and correction in history.
That’s why I believe right now could be the perfect time to start buying a diversified collection of top-notch companies at an excellent price. Providing I take a disciplined approach and make some prudent decisions, my ISA could have an impressive seven-figure balance in the long run.
Investing in millionaire-making shares
A common misconception among newer investors seeking to become millionaires is to focus on the cheapest, fastest-growing stocks. While that can lead to some success, it usually lands people into the realm of penny stocks, where they’re more likely to destroy wealth rather than create it.
Why? Because while some penny stocks have a reputation for achieving impressive growth, most lack another critical characteristic of a successful investment – value.
The lacklustre financials of these tiny, usually-unprofitable businesses make them highly susceptible to external factors such as rising interest rates and inflation. As such, there are countless examples throughout history of penny stocks surging right before they collapse into nothingness.
Needless to say, that’s not a great recipe for making a million in my Stocks and Shares ISA. Instead, focusing on high-quality, established enterprises with attractive long-term prospects could yield better results.
The growth may certainly be slower. But buying shares in a company that can consistently expand for decades is how investors like Warren Buffett became billionaires. Moreover, thanks to the 2022 stock market correction, many of these fanatic businesses are trading significantly below their intrinsic value.
In other words, now might be the perfect time to start investing if I’m aiming for £1m.
Diversifying my Stocks and Shares ISA
Even if I can successfully identify the best shares to buy today, there’s no guarantee they will stay that way in the future. After all, industry leaders are susceptible to disruption. And not all succeed in retaining their throne, whether it be from internal or external forces.
That’s why diversification, in my opinion, is critical for success. By owning a diverse collection of solid companies rather than a handful, my portfolio’s exposure to an underperforming investment is reduced. And by ensuring my investments are scattered across multiple industries, I can also reduce the impact of any sector-specific risk.
Suppose I’m starting from scratch investing £750 each month into high-quality companies and can achieve a 10% average annualised return? In that case, my portfolio would hit the £1m threshold in just over 25 years.
Of course, even a diversified portfolio is never risk-free. 2022 has demonstrated that perfectly, with the FTSE 250 dropping by nearly a third, despite having 250 stocks in it.
Crashes and corrections are an unavoidable part of investing. And more will undoubtedly happen again in the future. As such, it may take considerably longer for my Stocks and Shares ISA to enter millionaire territory.
Nevertheless, given the potential long-term rewards, I feel it’s a risk worth taking.