Investing in a Stocks and Shares ISA gives me a wonderful chance to grow my money tax-free over the long term. So it’s no surprise that these investment vehicles have become immensely popular in the UK in recent years.
In fact, according to comparison site Finder, around 3.5m Brits subscribed to a Stocks and Shares ISA in 2021. That was up from from 2.4m in 2019.
And the latest data reveals there are around 2,000 ISA millionaires in the UK today. Presumably, these are people who have religiously invested the full annual allowance for many years. They’ve taken the long view, which is what Foolish investing is all about.
So, taking a leaf out of the long-term investor’s playbook, how many years could it take me to reach a seven-figure portfolio?
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The maths
The annual ISA allowance for the current tax year is £20,000. Based on my calculations then, it would take just under 20 years to reach millionaire status investing the full annual allowance from today.
That’s due to the power of compounding, a mathematical force where interest is earned upon interest. Here’s a simplified version of this in action, assuming a 9% return (an assumption I’ll get to shortly).
| Year | Amount invested | Total |
| 1 | £20,000 | £20,000 |
| 5 | £20,000 | £120,605 |
| 7 | £20,000 | £186,170 |
| 10 | £20,000 | £309,435 |
| 15 | £20,000 | £605,082 |
| 17 | £20,000 | £765,804 |
| 19.5 | £20,000 | £1,002,025 |
In this example, a staggering £622,000 of the total amount would be attributable to the power of compound interest!
This is like a small snowball — picking up pace with each £20k added — until it eventually becomes a massive one.
Caveats and assumptions
There are a few things I should point out here. Obviously it would be nice to see my portfolio gain 9% consistently every year, but that’s not how the stock market works. In practice, the returns vary significantly from one year to the next.
So the 9% figure I’ve used here is based on historical averages across a number of indexes. For example, the long-term annualised total return (that is, with dividends reinvested) of the S&P 500 is around 10%.
Meanwhile, the total return of the FTSE 100 is around 7% over the last 20 years. However, the mid-cap FTSE 250 index has delivered an average annualised total return of 10% since inception in 1992. Again, that’s with dividends reinvested.
Why am I blending the average returns here then and not using a single index? Because it’s likely that an average UK portfolio contains stocks from most if not all of these indexes.
I know my own ISA does. I have FTSE 100 dividend-payers like Glencore and National Grid, as well as FTSE 250 shares such as Games Workshop. But then I also have many US stocks, including Visa and Nike.
The reason I invest in individual stocks such as these is because I’m trying to beat the index average. This makes investing riskier and more time-consuming, but does give me the potential to generate superior returns over the long term.
As always though, the ingredients to becoming an ISA millionaire are time, patience, consistency, and finding the right stocks to invest in.
