We probably all dream of making a million. And for many of us, a dream is all it is. But I reckon it can be done with a Stocks and Shares ISA.
In fact, there are now more than 2,000 ISA millionaires in the UK. According to government data, the most successful among them have accumulated £6m or more in their ISAs.
How do they achieve such riches? I’m looking at three key secrets of the UK’s ISA millionaires. And they’re actually not very secret at all.
Stocks and shares
Most successful ISA investors ignore the Cash ISA alternative and go for a Stocks and Shares ISA. It’s all about the relative returns we can typically expect from the two kinds of investment.
Some Cash ISAs are offering around 2.5% interest right now. And investing the full allowance of £20,000 per year could net a million in 33 years at that rate. But interest rates are very likely to fall once inflation is tamed.
Could we manage 6% per year from a Stocks and Shares ISA? That would bring the timescale down to 24 years. Even someone starting aged 40 could reach it before state pension age. Is 6% a realistic aim? There’s greater risk, but there are quite a few UK shares paying that much in dividends alone.
Now, it’s all very well me banging on about stashing away £20,000 per year. I don’t have that much to invest, and most people don’t either.
But the most successful investors, however much they have, use as much of their ISA allowance as they can.
To reach a million in 40 years, at a consistent 6%, we’d need to invest approximately £525 per month. That’s a meaningful amount, but achievable for probably quite a lot of people. What about stretching it a bit to £600 per month?
That would add an extra £150,000 to the pot after 40 years. And that’s the biggest key to successful long-term investing for me: to remember that modest amounts invested early on can make big differences by retirement day.
The UK’s richest Stocks and Shares ISA investors are in it for the long term. Many started out even before ISAs were introduced, converting their earlier PEP investments. And they just kept on going, year after year.
If it takes 40 years of investing £525 per month to reach a million, a further 10 years could almost double it to £1.9m.
Stock market crash? When Covid knocked a lot of UK share prices for six, many with a shorter-term view sold out. But the top ISA investors just kept going. And even invested more when they could.
I’m not suggesting making a million from a Stocks and Shares ISA is easy. But it’s not as out of reach as we might imagine.
And even if I don’t hit the magic seven-figure sum myself, I’m going to keep on investing as much as I can, for as long as I can, in UK dividend shares.
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The post Can I make a million from a Stocks and Shares ISA? appeared first on The Motley Fool UK.
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