I bet there aren’t many people who embrace active Stocks and Shares ISA investing without also dreaming of achieving life-changing returns over time. That’s certainly my goal.
It must be one of the primary motivations for many. Why else would people go to all the effort of researching, evaluating and monitoring a portfolio of stock market investments?
There are, after all, many passive alternatives. For example, we could pay into passive pension schemes and funds. And in that way, leave others to make the decisions about which stocks and shares to buy and sell.
Stocks and Shares ISA millionaires
But active investing is alive and well in the UK. According to data recently released by HM Revenue and Customs (HMRC), there are around 2,000 ISA millionaires in the country with an average of just over £1.4m in their accounts. And that figure suggests some serious investment success has taken place. After all, it’s only been possible to put just under a third of a million into ISAs and their forerunners PEPs since 1987 when it all began.
So the path to becoming an ISA millionaire is well-trodden. And the first person to publicly declare his ISA millionaire status was Lord (John) Lee in 2003. Since then, he once said his portfolio has appreciated several million more.
However, is it a good idea to invest in shares now? The headlines are full of concerns such as the war in Ukraine, rampant price inflation, supply shortages, and an almost-inverted yield curve threatening to predict a recession. Indeed, it’s possible at any time for the stock market to deliver volatility, setbacks, corrections and bear moves.
But over time, the overall market has been kind to investors. For example, at the current level near 7,550, the FTSE 100 index of the UK’s largest public companies has increased by just over 650%. It started in January 1987 at 1,000. And over that period, there have been many recessions, bear markets, macroeconomic uncertainties and geopolitical concerns.
A three-part strategy
Of course, there are no guarantees the Footsie will perform as well over the coming decades. But adopting a long-term investment perspective is one of the key parts of my strategy.
And the second part of my strategy is to embrace the principle of compounding. Those returns from the FTSE 100 are impressive, but observing the level of the index ignores the potential from dividends. For example, these days it’s possible to invest in the fortunes of the Footsie by putting money into a simple, low-cost index tracker fund. And if an investor had reinvested that stream of Footsie dividends since 1987, the overall returns from the index would have been higher still.
But on top of that potential, the third part of my strategy involves striking for even higher returns by investing in the shares of individual companies after careful selection. There is no certainty my ISA portfolio will one day join the exclusive ISA millionaire club. Indeed, all shares carry risks as well as positive potential. But things are going well so far. And I’m going to keep trying.
