How to target a £100,000 portfolio in a Stocks and Shares ISA

Zaven Boyrazian explains how to leverage the power of a Stocks and Shares ISA to try and build a big investment portfolio in just four years.

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.

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'

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 with a Stocks and Shares ISA is one of the best ways for British investors to build wealth, in my opinion. And following the recent cuts to dividend and capital gains allowances, the tax benefits of this account are making it even more valuable.

Investors are restricted to only injecting £20,000 per year into their ISA. But this is more than enough capital to build an investment portfolio in the six-figure territory. And relatively speaking, it won’t even take that long, especially if an individual can max out their allowance each year.

Stocks and Shares ISA benefits

Let’s say an investor earns £5,000 in dividends a year. If they’re in the basic rate tax band, they’re exposed to 8.75% tax beyond the first £1,000. That’s £350 going to the tax man. And the situation becomes diabolical for anyone fortunate (or unfortunate) to be in the higher rate tax band since the dividend tax surges to 33.75% or £1,350!

To add insult to injury, the £1,000 tax-free dividend allowance is being cut in half as of April 2024. But the good news is that this capital outflow can be eliminated entirely with a Stocks and Shares ISA. Any capital gains or dividends received in this tax-efficient account are immune to such taxes. And investors don’t even need to declare it on their annual tax return.

Let’s demonstrate how valuable this advantage is. £1,350 compounded over 30 years at the stock market’s average return of 10% is equal to £26,780.49. In other words, those earning £5,000 in dividends outside an ISA today are missing out on almost £27k in long-term wealth. And that doesn’t even account for any returns from capital gains.

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.

Building a £100k portfolio

Given the positive impact of tax-free investment gains, investors should strive to maximise their annual ISA allowance as much as possible. After all, the allowance doesn’t roll over, and any allocation not used within a tax year is lost forever.

Assuming an investor is successful in this pursuit, this translates into investing roughly £1,667 each month. And by investing in a low-cost index fund, matching the stock market’s average return is relatively easy, resulting in a six-figure portfolio within just four years.

Of course, putting aside £1,667 each month for investing is pretty difficult for most households. In fact, data from HMRC shows that the majority of Stocks and Shares ISA holders fail to even come close to this. But that doesn’t mean it’s not possible to reach £100k.

Even if an investor can only comfortably allocate £500 each month, they’ll still be able to reach their milestone within 10 years. And by deploying stock-picking strategies to boost investment returns, the waiting time can be significantly reduced.

Of course, there are never any guarantees when it comes to investing. Just because indices like the FTSE 250 or S&P 500 have delivered around 10% annualised returns in the past doesn’t mean they will continue to do so in the future.

And while stock picking paves the way to market-beating returns, it can also decimate wealth when executed poorly. Nevertheless, when following a disciplined investment strategy within a Stocks and Shares ISA, British investors can position themselves to be far better off in the long run. At least, that’s what experience has taught me.

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.

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

Illustration of flames over a black background
Investing Articles

Just released: October’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

A Black father and daughter having breakfast at hotel restaurant
Investing Articles

2 household names quietly thrashing the FTSE 100

Paul Summers takes a closer look at two FTSE 100 stocks that have soared despite recent economic headwinds. Will they…

Read more »

Investing Articles

A FTSE 250 share and an ETF I’d buy for a second income

I'm looking for ways to make a healthy passive income and I think this stock and this exchange-traded fund (ETF)…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

3 reasons why I’m avoiding Rolls-Royce shares like the plague!

Rolls-Royce shares trade on a meaty price-to-earnings (P/E) ratio of 30 times. Royston Wild thinks this leaves them in danger…

Read more »

Investing Articles

After crashing another 15% today is this FTSE blue-chip now the best share to buy today?

Harvey Jones has been watching FTSE 100 gambling stock Entain for months and is now wondering whether it's the best…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Here’s what Warren Buffett says is ‘the best way to minimise risk’ (it’s not buying the S&P 500)

What should investors do to try and avoid losing money? Warren Buffett has an answer that doesn’t involve buying an…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

2 cheap shares I wouldn’t touch with a bargepole in today’s stock market

These FTSE 100 and small-cap stocks are on sale right now. But Royston Wild believes these cheap UK shares may…

Read more »

Investing Articles

Here’s the growth forecast for Greggs shares through to 2027!

City analysts expect the UK's leading food-on-the-go retailer to continue growing. But would this writer buy Greggs shares today?

Read more »