Despite devastating world news and negative headlines bombarding us daily, I still believe you can make money in the UK stock market. Patience, discipline and hope are vital, along with the ability to choose investments carefully. With these qualities, I think you’ll have what it takes to (potentially) become a Stocks and Shares ISA millionaire.
Look at some rough figures. If you start with £2k, then invest £300 a month for 40 years at an average return of around 8%, you’ll have well over £1m. Invest more and you’ll get there faster. But where should you invest?
I’d choose the FTSE 100 as it’s home to the top 100 UK-listed companies ordered by market capitalisation, essentially the biggest 100 businesses worth the most money. A Stocks and Shares ISA makes it easy to invest in these businesses directly or through index funds.Â
These companies include FTSE stalwarts such as Lloyds Banking Group (LSE:LLOY) with a market cap of £36bn, BP with its £89bn market cap and Vodafone Group (LSE:VOD) with a market cap of £40bn. These are each established in the heart of British consumerism but are they a good investment at today’s share prices?
Challenges ahead
Unfortunately, they face challenges. Lloyds depends on a prosperous economy, BP is up against climate change activists and future diminishing demand for oil and Vodafone is facing increasing costs and a slowdown in the 5G rollout.
With the coronavirus outbreak spreading and stock indices falling, it’s difficult to choose stocks to buy. Until we know the extent of the impact on financial markets and businesses, many stocks may have further to fall. But this could open up buying opportunities for investors. FTSE 100 stocks I like include Aviva, The London Stock Exchange Group and Auto Trader.
If you already hold a portfolio of stocks, I think it’s important not to panic-sell. The stock market has always recovered in the past, and I’m sure it will again. Also, keep your Stocks and Shares ISA balanced with a portfolio of diversified assets including equities, bonds, and index funds.
Compounding riches
Compounding is the secret to success in growing a million-pound portfolio through your Stocks and Shares ISA. Compounding is when you generate interest on your interest, it works on your capital, but also on your dividend income.
Many FTSE 100 companies offer a reliable dividend yield. The Lloyds share price has a dividend yield of 6%, BP one of 7% and the Vodafone share price has a yield of nearly 5%.
The time taken to reach millionaire status depends on your financial circumstances, the interest rate of return on your investments and the period you can afford to wait.Â
Greed, fear and the human factor
It’s inevitable that you’ll get greedy or fearful or too focused on one sector to see the bigger picture. Even successful investors have their down days and many have experienced severe financial losses.Â
At age 30, Charlie Munger was broke and dealing with personal heartache, but rather than wallowing in self-pity, he joined Warren Buffett at Berkshire Hathaway and became a multi-billionaire.
One of their primary strategies is to focus on income over capital, reinvesting dividends and watching them compound to riches. Although capital gains are also important over the long-term, intermittent fluctuations are unavoidable along the way. But, if the focus is on income rather than capital, eventual growth should prevail.