Could I become a millionaire within 20 years investing in a Stocks and Shares ISA?

Is it possible to build a seven-figure Stocks and Shares ISA portfolio inside two decades? This writer thinks so. Here’s how he’d try and achieve it.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young mixed-race couple sat on the beach looking out over the sea

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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?

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.

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).

YearAmount investedTotal
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
Data: The Calculator Site

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Games Workshop Group Plc, Glencore Plc, National Grid Plc, Nike, and Visa. The Motley Fool UK has recommended Games Workshop Group Plc and Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »