Building a £1m portfolio consisting of UK shares is no doubt an ambition shared by many investors. Today, I’m going to outline exactly how I’d go about aiming to achieve just that.
A quick word of warning though, it’s not as quick or as easy as some out there would have me believe.
Is a million-pound portfolio possible?
The first thing I want to highlight is that it’s absolutely possible for me to make a million from buying and holding UK shares.
Above all, this is thanks to the miracle of compound returns, which is the process whereby money earned from an investment builds upon itself over longer periods of time.
To illustrate, let’s say I set aside £350 per month to invest. Assuming an 8% annual return, after 39 years I’d have an investment pot worth £1,046,529.
Crucially, earning a marginally higher or lower rate of return would make a huge difference to the amount of money I’d end up with.
It would also significantly speed up or slow down the time it would take for me to reach £1m.
The importance of a long-term outlook
What this highlights to me more than anything else is the importance of time and patience. To build that million-pound portfolio, I’ll have to be willing to be in it for the long term.
If you don’t believe me, just ask Hargreaves Lansdown. Last year, the investment platform reported that the average age of their ISA millionaires was 72. This is because compound returns take time to really get going.
In addition, I need to be prepared to hold my shares for the long term in order to overcome short-term volatility.
If there’s one thing that will harm my returns, it’s getting cold feet after seeing the value of my portfolio fall amid temporary share price fluctuations.
For this reason, I’d focus on buying high-quality UK shares that I’d be happy to buy and then forget about for the next 10-plus years.
Stocks and Shares ISA
Where would I store these investments? In an ISA of course!
A Stocks and Shares ISA is essentially a tax wrapper that shields a wide range of investments, including UK shares.
As such, any capital gains or dividends received from my investments in an ISA would be tax-free.
This tax efficiency would be a major boost in my pursuit to build a million-pound portfolio.
A diversified basket of UK shares
When it comes to picking the companies I’d invest in. I’d personally focus on trying to pick out those with outstanding long-term growth potential.
Targeting these companies makes sense because I have a lot of time on my side.
As a result, I can prioritise higher-risk picks and look for firms that can grow earnings rapidly and thus significantly rise in price.
After hoovering up a diversified selection of, say, 15-20 of these UK shares, I’d hold them for the next 35-40 years as part of my strategy to to become an ISA millionaire.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
