Investing through an ISA could be a sound move in the long run. It offers significant tax advantages, which could lead to improved returns versus investing through a share-dealing account.
Of course, making a million from an ISA during a lifetime remains challenging, even with tax advantages and relatively low costs. With that in mind, here are three steps that could improve the chances of an individual investor generating high returns over the long run.
Consistent investing
While it may be tempting to try and time the market, the reality is that doing so is challenging. While many investors may be able to call the general direction of the market from time to time, doing so on a regular basis is difficult.
As such, it may be prudent to instead invest on a regular basis – whether the market is enjoying a bull run or is in the depths of a bear market. Doing so instils discipline, as well as providing the opportunity for capital to generate the strong returns that are offered by shares, rather than being in a savings account waiting for an opportune moment to buy.
With the FTSE 250 having delivered a 9%+ total return on an annualised basis since 1999, investing small amounts often can lead to sizeable returns in the long run.
Manage risk
While it may be tempting to pile into a stock that appears to offer growth at a reasonable price, the reality is that all investors make mistakes. Even the best investors, such as Warren Buffett, end up losing money on some of the stocks they purchase.
As such, it is imperative to manage risk within an ISA. One way of doing so is to buy a variety of stocks that operate in different sectors and markets. The end result may be a less volatile shareholder experience, as well as a lower chance of losing money as a result of company-specific developments.
Manage expectations
While making a million in an ISA is possible in the long run, the reality is that it will take time to achieve. As such, focusing on assets that apparently offer high potential returns, but with significant risk, may not be a shrewd strategy.
Rather, an investor may wish to accept that the stock market operates in cycles, and there will be periods of disappointment along the way to an improved financial status. Likewise, during bull markets it is tempting to feel as though growth will last forever. Just as in a bear market, things are constantly changing, and there will be highs and lows over a period of many years.
The stock market, though, has made many fortunes in the past. It looks set to do so in future. By investing consistently in an ISA, as well as managing risk and limiting expectations, it may be possible to become an ISA millionaire in the long run.
