A plan to invest £20k in shares per year could allow an investor to make a million in a Stocks and Shares ISA within 20 years. They would need to match the FTSE 100’s historic annual total returns of around 8% since inception to build a portfolio valued in excess of £1m.
However, by investing money in shares that offer long-term growth potential, solid financial positions and wide margins of safety, it may be possible to outperform the stock market. In doing so, an investor could make a million in a shorter timeframe by investing the same amount of money.
Invest £20k in shares with long-term growth potential
At the present time, it’s difficult to predict which companies offer the best growth opportunities for a strategy that plans to invest £20k in shares. After all, the prospects for the world economy are uncertain after the 2020 stock market crash. Moreover, many of the risks that caused it, such as the coronavirus pandemic, are still present.
However, some industries appear to have more attractive long-term outlooks than others. For example, sectors that are likely to benefit from increasing numbers of people working from home, a higher proportion of online-driven consumption, as well as changing global demographics could produce relatively high profit growth in the coming years.
Identifying such businesses is, of course, subjective. But companies that are likely to benefit from favourable operating conditions could prove to be sound long-term investments for Stocks and Shares ISA investors.
Financial strength to make a million
Growth is an important consideration when seeking to invest £20k in shares per year to make a million. But so too is ensuring survival in the current economic climate. As mentioned, risks such as coronavirus are likely to remain in play over the coming months. Therefore, look for companies that have the financial means to raise funds, or the cash to plug gaps in the short run. These may offer greater scope to benefit from a likely stock market recovery.
Assessing the financial strength of a business can be done through focusing on its balance sheet. Stocks with low debt levels and access to large amounts of liquidity could be more attractive to Stocks and Shares ISA investors who are seeking to make a million.
Buying cheap shares after the stock market crash
The 2020 stock market crash provides an opportunity to invest £20k in shares while they trade at low prices. The FTSE 100 and FTSE 250 haven’t yet produced recoveries from their declines earlier this year. Therefore, it’s still possible to buy financially-sound businesses with attractive long-term growth prospects at cheap prices.
Investing money in cheap shares can mean higher profits over the long run as a likely stock market recovery takes hold. As such, they could improve an investor’s chances of making a million through a Stocks and Shares ISA.
