Can I realistically turn £20,000 into £1m in my Stocks and Shares ISA? There are multiple methods I could use to try but there are some considerations to think about too.
For instance, one key factor is how much time I have to reach my goal. If I want to reach a million within just 10 years, I calculate that I’d need to grow my ISA by a whopping 48% a year. That sounds unlikely to me.
Maximising a Stocks and Shares ISA
But if I’m planning for my retirement, I could stretch my timeframe to say 30 years. By doing so, I’d need to earn a more modest but not insignificant 14% a year.
To achieve this above-average return, I will likely need to take some extra risk. One thing I’ve noticed about the best performing shares over the past decade is their size.
Size matters
Most of the star performers that gained over 20% a year started off as small or mid-sized companies. That makes sense as it’s far easier for a tiny company to double in size than it would be for a giant like BP.
To this point, small-cap investor Jim Slater often used to say, “elephants don’t gallop”.
But there are some things to bear in mind. Investing in smaller companies can carry additional risks compared to more established FTSE 100 shares.
Their share prices can be more volatile, or illiquid. It’s not uncommon to see share prices fall dramatically in short-term periods.
That said, as a long-term investor, I should be able to withstand extra swings in price. And if I pick my stocks well, I could be rewarded with significant share price gains.
Currently, there are dozens of small-cap or mid-cap UK shares that I think will succeed over the coming years. My top picks include Volex, SDI and Future. With further research, I’d hope to find many more.
Buying US technology shares
Next, I would look to the US technology sector. Many of the world’s largest tech companies started in the States. And several have achieved phenomenal share price gains over the past decade.
For instance, the best performing stock is Tesla, with an annual gain of 64%. It’s worth noting that investing £20,000 in Tesla shares a decade ago would be worth an incredible £2.8m today.
Innovation is key
So how can I find the next Tesla? I’d look to the biggest trends and themes that could drive our way of life in the decades to come. Artificial intelligence, healthcare and renewable energy are key areas I’d focus on.
I’d look for the leaders in each field and follow them closely. Alternatively, I’d back a well-managed fund that has a successful track record in buying innovative companies. In particular, Scottish Mortgage Investment Trust comes to mind.
It was an early backer of Tesla, long before the shares became popular. And it has been rewarded handsomely for that conviction. Scottish Mortgage achieved a market-beating 21% annual return over the past decade.
More recently, its share price has tumbled by 35% over the past year, but I’d consider it an opportunity for my long-term Stocks and Shares ISA.
