Data from HMRC shows there are 2,000 Stocks and Shares ISA millionaires in the UK, with an average holding of £1.4m. And this got me wondering whether it is possible to join their ranks starting with a £100 investment?
Patience
The first thing I’ve learned is that it would take a very long time to reach £1m by investing in the stock market as a whole.
Between 1984 and 2022, the FTSE 100 grew by an annual average of 5.3%. If dividends had been reinvested this would have increased to 7.4%. But even at this higher rate it would take 130 years to get to £1m.
That’s because a stock market index will contain some star performers but most will deliver more modest returns, bringing the overall average down.
To achieve really high growth rates it’s therefore necessary to focus on individual stocks.
But no stocks are immune from the effects of a stock market crash or a recession. It’s therefore necessary to remain invested for a long period.
Picking winners
A sum of £100 invested in Berkshire Hathaway shares in 1965 would now be worth over £3.5m. That’s a compound annual growth rate of 19.8%, compared to 9.9% for the S&P500.
Although past performance isn’t necessarily a reliable guide to the future, it’s possible that this level of return could be replicated over the next 58 years. But one share now costs over $534,000 — and it’s not possible to buy fractions of a stock — so I’d have to look elsewhere.
But there are a number of other well-known companies that have grown rapidly since making their stock market debuts.
For example, Amazon stock has grown nearly 15,000 times since May 1997, and would have turned £100 into £146,900 by now.
Apple is not far behind — the same initial investment would now be worth £130,500.
But despite these huge returns, they are a long way short of my £1m target.
Get in early
If I’m to get close to £1m, I think it’s necessary to invest during the early life of a newly listed company. But according to EY, there were 615 IPOs in the first half of 2023. I don’t have the time to look at the prospects for each of these companies.
And for every Amazon and Apple there are thousands of stocks that have failed to perform in line with expectations.
Reality
So, could I reach £1m from investing £100? The truth is, probably not.
I’ve been trying for many years by investing small lump sums, as and when my circumstances allow. There’s a long way to go before I’ll reach seven figures but I take comfort that my ISA is now worth more than the amount I’ve invested. And surely that’s what successful investing is all about?
I’ve learned not to become distracted trying to pick the next big winner. My approach is to buy stocks in established companies and reinvest the dividends received.
I’m also conscious that inflation is permanently eroding the value of cash so I invest in stocks and shares to help mitigate its effects.
The best investment advice I’ve heard is to start early and invest as much as you can, for as long as possible. I’m sure most ISA millionaires would agree with this approach.
