Investing within an ISA is one of the best ways to build wealth in the UK. With these tax-efficient accounts, even a small amount of money can turn into a larger sum over time.
Here, I’m going to explain how I’d aim to build a £500k portfolio if I was just starting my ISA journey today. These are the moves I’d make in an effort to build long-term wealth.
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.
I’d start with a savings plan
So, let’s say I already have a Stocks and Shares ISA open.
The first thing I’m going to do is start a regular savings strategy. Here, I’d sit down and work out how much I could afford to put into my ISA every month.
Then, I’d be disciplined and put this amount of money into my ISA account every month, the minute I was paid. ‘Paying myself first’ like this would help me save more effectively as I wouldn’t be tempted to spend the money.
Putting my money to work
Once the money was starting to pile up, I’d look to put it to work by investing it. This is the process of putting money into financial assets in the hope of generating greater returns than those offered by savings accounts.
Now, when it comes to assets that can grow wealth, it’s hard to beat the stock market.
Over the long term, the stock market has produced returns of around 7-10% per year for investors, making it the greatest wealth creation machine of all time. This performance from stocks has helped many people generate lasting wealth.
The key to successful investing
The thing is, to generate these kinds of returns, I’d need to build a proper stocks portfolio. I’m talking about a portfolio that’s diversified across many different companies, industries, and countries.
Without this level of diversification, I may not generate high returns.
For example, if I only owned four stocks, and one tanked, my overall returns could be low.
Similarly, if I had all my money in tech stocks, and the technology sector crashed, I could end up going backwards.
So, I’d do my research – with the help of experts like The Motley Fool – and set about building a diversified stocks portfolio that includes tech, healthcare, consumer goods, financial stocks, and more.
I’d aim to invest in world-class businesses such as Diageo (one of the biggest players in the alcoholic beverages market), London Stock Exchange Group, and Alphabet (Google’s owner), which all have incredible track records when it comes to generating shareholder wealth.
Aiming for £500k
How long would it take me to build up a £500k portfolio using this approach?
Well, it would depend on how much I was saving regularly and the long-term returns I was able to generate.
If I was able to save £1,000 per month and generate a return of 8.5% per year on my money over the long term, I could potentially hit the £500k mark in less than 20 years.
