5 steps to building an £800,000 SIPP

Through making regular contributions, managing risk and investing strategically, our writer believes he could target an £800,000 SIPP.

Senior woman potting plant in garden at home

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.

What is a realistic goal in building the long-term value of a Self-Invested Personal Pension (SIPP)?

While some people end up creating a SIPP nest egg of over a million pounds, I would consider a more modest goal, say £800,000. Here is how I would go about trying to make that idea a reality, in just five steps.

1. Set up a SIPP

First things first. If I did not already have a SIPP, my initial step would be to set one up.

Different providers offer a variety of benefits and cost structures, so I would choose the one I felt best suited my own needs.

2. Getting serious about contributions

The rules for how much people can contribute to their SIPP depend on a variety of factors.

In theory, it is actually possible to contribute over £800,000 to a SIPP, depending on individual financial circumstances.

In practice, I would aim for a regular contribution I felt offered me some real potential to hit my long-term target, but was also affordable.

Imagine I had 30 years until retirement. If I put £900 each month into my SIPP, that would already add up to contributions of £324,000 between now and then.

3. Investing for the long term

With a 30-year time horizon I could comfortably settle into a habit of investing for the long term.

My focus would not only be on possible rewards, but also reducing my risk. I would rather invest in what I saw as relatively low-risk, blue-chip shares than higher-risk but potentially more rewarding choices.

So I would look for companies I felt had a business model that set them apart from competitors in a market I expected to see ongoing high customer demand. For example, that might be the brand portfolio of Unilever, the distribution network of National Grid, or the proprietary technology of GSK.

4. Hitting a target return

I would be willing to invest my SIPP across both growth and income shares.

Investing £900 monthly for 30 years, to hit my final goal of £800,000 I would need to achieve a compound annual growth rate of less than 6%. I see that as eminently achievable.

Quite a few FTSE 100 companies offer yields of over 6% at the moment. Dividend income is only one part of the compound annual growth a share might offer me. If the share price goes up (or down) that could also contribute to my compound annual growth rate, for better or worse.

While I think a compound annual growth rate of under 6% is achievable, I would pay close attention to risk management. I would build a diversified SIPP portfolio of companies I felt strongly confident in and whose share price offered me a margin of safety.

5. Being patient

With regular contributions and a careful focus on selecting the right kind of shares, I do think I could hit my goal, although I know it’s not guaranteed.

Over a 30-year timeframe, I would be bound to run into bumps. They might be changes in my own financial circumstances, a stock market crash, or a bull run pushing many share prices up to what I thought were unattractive levels.

By trying to stay calm and focusing on my long-term strategy, hopefully I could navigate such challenges when building the value of my SIPP.

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 no position in any of the shares mentioned. The Motley Fool UK has recommended GSK and Unilever Plc. 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

pensive bearded business man sitting on chair looking out of the window
Investing Articles

The Dr. Martens share price just crashed 25%! Time to buy?

The Dr. Martens share price has plummeted. Is this an opportunity for our writer to add the stock to his…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Dr. Martens: is this collapsing FTSE 250 stock now a contrarian buy?

Shares of this well-known FTSE 250 firm just dropped to a record low following a poorly received report. Is this…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Why I’d start putting money into dirt cheap UK shares this December

Our writer isn't waiting until the New Year to consider opportunities for his share portfolio. Here are some reasons why…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

What are the best shares to buy in December for 2024?

Christopher Ruane explains why he's not waiting until 2024 to make moves in the stock market and would be happy…

Read more »

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

£5k of savings? I’d target income of £7,544 a year by investing in just 3 dividend shares

I'm building a portfolio of dividend shares to give me a passive income in retirement. It's astonishing how the rewards…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

One dividend giant I’d buy over Aviva shares

Aviva shares still look a good buy to me, but I think right now another high-yielding dividend stock looks even…

Read more »

Newspaper and direction sign with investment options
Investing Articles

I would grab these cheap shares before prices rise again

With the UK market in a slump, this Fool UK contributor is looking at buying up some cheap shares before…

Read more »

Girl buying groceries in the supermarket with her father.
Investing Articles

Down 55% since 2007, can the Tesco share price turn around?

The Tesco share price has fallen by more than half in recent decades. Our writer explains whether the stock has…

Read more »