The average adult ISA (Individual Savings Account) is worth a little over £33k. That’s according to government statistics from the end of the 2021/2022 tax year.
Now, £33k is a decent amount of money. But here at The Motley Fool, we like to think it’s possible to build up way more than that in an ISA. With that in mind, here’s how I’d aim to build an ISA worth triple the average (around £100k).
The best ISA
Building a £100k ISA may sound like a daunting task. However, with the right type of ISA account, a regular savings plan, and a decent investment strategy, it’s definitely an achievable goal.
And it’s probably easier to achieve than a lot of people think.
If my goal was to build a £100k ISA, the first thing I’d do is open a Stocks and Shares ISA (if I didn’t already have one).
The beauty of these ISAs, relative to the Cash version, is that they offer access to a wide range of investments. It’s therefore possible to grow savings much faster.
If I already had money in a Cash ISA, I’d consider transferring it across to a Stocks and Shares ISA using an ‘ISA transfer’. This would allow my money to retain its tax-free status.
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.
Regular savings
Once my account was open, I’d start a regular savings plan. I’d want to contribute as much money as I could to take advantage of the £20,000 annual ISA allowance.
By contributing regularly to my account, my savings would add up quickly.
Strong returns
Finally, I’d look to get my money working for me by investing it in the stock market.
Over the long term, the stock market tends to produce returns of around 7-10% a year – a much higher return than cash typically offers.
Of course, stocks can be volatile in the short term. So I wouldn’t invest any money I was likely to need soon.
But for money that I was happy to put away for a few years, I would look to invest a large proportion of it.
As for how I’d invest in the stock market, I’d go for a mix of stocks and funds. I’d use funds for diversification. Funds typically offer exposure to hundreds (if not thousands) of stocks. So they can be a great risk-management tool.
Meanwhile, I’d buy individual stocks in an effort to achieve market-beating returns. Stocks are riskier than funds however they can produce much higher returns at times.
Just look at Apple. Over the last five years, it has risen about 220%, meaning it has more than tripled investors’ money.
£100k in six years?
How long would it take to build up £100k in an ISA with this approach? Well, that would depend on how much I was contributing to my ISA account and my average returns.
But let’s say I was contributing £1,000 a month and achieving a return of 8.5% of my money, on average.
In this case, it would take me a little over six years to go from an empty ISA to £100,000. Of course, that’s not guaranteed and I could make much less!
