£20K in a Stocks and Shares ISA? Here’s how I’d aim to turn it into £50K

Christopher Ruane considers possible ways he could try to double his money over the long run in his Stocks and Shares ISA with a spare £20,000.

artificial intelligence investing algorithms

Image source: Getty Images.

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.

A Stocks and Shares ISA can be a good vehicle to try and build wealth over the long term.

If I had a spare £20,000 in an ISA and wanted to try and increase it to £50,000 over coming years, here is how I would go about it.

Growth and income

As an investor in the stock market, there is a choice of growth and income shares. The description is only a rough one. Some shares offer the prospects of business growth and dividend income, while others offer weak growth prospects and no likelihood of a dividend.

Roughly speaking though, it can be a useful way to categorise shares.

To grow the value of my Stocks and Shares ISA, I need either an increase in the price of my shares or dividend income from them.

If I am fortunate, I may get both! When selecting a share to buy though, I ask myself what I hope will be its primary source of wealth-building for me over the years to come. Price growth or dividend income.

If I had a spare £20,000 in an ISA right now, I would put 60% into dividend shares and the remainder into growth shares.

Long-term dividend potential

The sorts of dividend shares I would buy for my ISA would be similar to (and in some cases the same as) ones I already own, like Legal & General and Vodafone.

I would be looking for blue-chip companies with a long-term competitive advantage I think could generate chunky free cash flows to fund dividends.

Some businesses may end up disappointing me. So I would split the £12,000 across a handful of different income shares.

In the current market, I think an average dividend yield of 8% is attainable even while only investing in FTSE 100 companies with proven businesses.

Going for growth

Turning £20,000 into £50,000 is equivalent to growth of 150%. If I could compound my dividends at an annual rate of 8%, the value of my income shares should increase 150% in 12 years.

That example presumes a flat share price and dividend in each case. In practice that is unlikely – both things could move up or down. But it shows how compounding dividends can help to build wealth.

With the remaining £8,000 of my Stocks and Shares ISA going on growth shares, I have to accept that finding attractively priced growth shares can be difficult.

To hit my target, I would be looking for shares in dynamic businesses with strong growth prospects. I would want to buy at a valuation I think could allow for an increase in value 150% over the coming decade or so.

In the past decade such a return was achieved by growth shares like JD Sports and Ashtead.

Past performance is not a guide to what will happen in future. But I would look now for similar characteristics to those such companies had a decade ago, namely a large target market, strong competitive advantage and proven business model.

As well as that, valuation is critical. I do not just want to find business I think have strong growth prospects. I also want their shares to be attractively priced.

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.

C Ruane has positions in JD Sports Fashion, Legal & General Group Plc, and Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. 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

Young black colleagues high-fiving each other at work
Investing Articles

If I could buy just one FTSE stock right now, it would be this high flyer!

Mulling over the choice of only buying one FTSE stock, Sumayya Mansoor explains why she would choose this discount retailer.

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

8% or 4%? Is one dividend yield twice as good?

When it comes to income shares, could less be more? This writer considers the role of dividend yield in his…

Read more »

British Pennies on a Pound Note
Investing Articles

I’m eyeing this passive income machine for my SIPP in December!

A double-digit dividend yield is not the only thing that has grabbed this writer's attention when it comes to considering…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

One undervalued growth stock I’m eyeing up ahead of 2024!

This growth stock caught the eye of our writer. She breaks down its investment viability as she looks to start…

Read more »

Investing Articles

3 reasons the BP share price could surge in 2024

Stephen Wright outlines why resilient oil prices, lower inflation, and the avoidance of a global recession could send the BP…

Read more »

Investing Articles

Could buying these 3 AI shares be like investing in Tesla in 2010?

I wonder if investing in these three AI stocks could match the meteoric rise in the value of Tesla shares…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Will the stock market Santa rally continue through 2024?

Here’s why I think the signs look good for a potentially enduring broad-based stock market rally through December and beyond.

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

If I’d put £10k in Greggs shares 3 years ago, here’s how much I’d have now

Greggs shares have served up some very tasty returns for shareholders over the last three decades. But what about the…

Read more »