With its annual contribution limit of £20,000 it can be easy to think that a Stocks and Shares ISA is an investment tool for fairly affluent people.
That is not necessarily the case though. Imagine I had £2,000 – or decided to save it up over the coming year, by putting aside a bit more than £38 each week on average. I think I could use a Stocks and Shares ISA to try and double my money over the coming years.
Why I use an ISA
I have an ISA myself. But if I had a spare £2,000, I could also just invest it directly in the stock market. Why bother with the ISA at all?
There are tax advantages. But I think one practical reason for me to use an ISA would be that having gone to the effort of choosing one that seemed right for me, I might then feel motivated to stick to my investment plan!
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.
How to try and double my money
The way to double my money in the stock market sounds easy in principle.
One is capital gains. In other words, if the shares I buy double in price, my £2,000 Stocks and Shares ISA will be worth £4,000.
Another is dividends.
Vodafone has a dividend yield of 10%. I diversify my ISA across a range of shares, but if I could achieve an average dividend yield of 10% each year, I would double my money in a decade. In fact, I could do it even sooner by reinvesting the dividends along the way.
Or I might double my money through a combination of capital gain and dividends.
Finding the right shares
So far, so straightforward – in theory.
In practice though, how can I find shares that might soar in price, pay beefy dividends, or both?
It may sound counterintuitive, but rather than focusing on potential large rewards, I would pay more attention to reducing my risks.
Specifically, I would aim to build a portfolio of blue-chip shares in businesses I think have outstanding long-term prospects. With £2,000 to invest, I would only be looking for a handful of shares to buy.
Crucially, I would aim to buy them only when the price seems like really good value to me compared to how I see the business prospects.
Taking the long-term approach
I also need to be realistic about timelines.
Over a decade, I really think I could double my money in a Stocks and Shares ISA. It is not guaranteed and I could lose money as well as making it. But I think I have a chance.
Yet I very much doubt I could do it quickly, say, in a year. Even if I did, I would regard such a feat as a stroke of luck. Then again, the smarter the investing choices I make, the more I could hopefully make my own luck to some extent!
So I take a long-term approach to investing. Hopefully that could help me turn even a fairly modest Stocks and Shares ISA into something bigger!
