If I invest today, can I build wealth in the future? I think I could, but it will require the right investment decisions and patience. That does not have to be complex though. Here is how I could try to go about it by using £20,000 in a Stocks and Shares ISA and sticking to well-known blue chip FTSE 100 shares.
Having a long-term view
I take a long-term approach to investing. I think a Stocks and Shares ISA can be a good vehicle to help me focus on a timeframe of years or even decades.
If I want to build long-term wealth, what do I need to do? As much as possible, I need to buy into strong, resilient businesses that are attractively priced.
But I also need to avoid buying into second-rate or overpriced businesses. Many people focus on finding great investment ideas but spend less time figuring out how to avoid bad ones. I think that can be a costly mistake.
I could make some great investment choices, only to generate a low or even negative overall return in my Stocks and Shares ISA because the performance is dragged down by a few very poorly performing shares.
Focus on quality and inactivity
I would therefore limit my search to companies I think can do well in the long term. Examples in my ISA include shares like JD Sports. It has seen its share price falling in the past year. But in the long term, I reckon it can benefit from a strong competitive advantage in an area where I expect to see ongoing customer demand.
Another element of my investment approach is inactivity. That may sound odd. But I think long-term investment is about buying and holding. If a company has strong prospects I feel could get even better, why would I sell my stake in it? Instead, I sit back and let time pass.
Allocating my Stocks and Shares ISA
I could make wrong choices, though, even with my focus on reducing risk.
It might be that I miss something about a company or spot a customer trend or competitive threat too late. But it might also be something I could never have known. Even the best company can occasionally run into deep trouble unexpectedly.
So I would diversify, by splitting the £20,000 in my Stocks and Shares ISA evenly across five to 10 shares. I would also spread it over a number of different industries.
I own shares such as British American Tobacco, for example. Tobacco stocks can do quite well even in a recession. But they can miss out when growth shares are popular. So I also own some tech stocks.
Sticking to areas I feel competent to judge, I choose companies I think have great prospects within those areas. Over time, hopefully, that can help me build my wealth.
