How I’d aim to transform an empty Stocks & Shares ISA into £1m of wealth!

There’s never a better time to start investing in a Stocks and Shares ISA than today. Here’s how I’d aim for £1m when starting with nothing.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

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The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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The Stocks and Shares ISA is an invaluable tool for UK-based investors, allowing us to shield our earnings and dividends from tax. With non-ISA earnings taxed at standard rates, it really makes sense to use this investing vehicle.

And every year we can put up to £20,000 in an ISA investment account. Of course, there’s no obligation to max out our ISA contributions, and the vast majority of us won’t get near. But that doesn’t mean we can’t use this tax-free wrapper to create some serious wealth.

Starting with nothing

Millions of us in the UK don’t have a Stocks and Shares ISA, but getting started is simple. I can simply go to any major brokerage, like Hargreaves Lansdown, AJ Bell, or Interactive Investor, and open an account.

These days, we can start an investment account with almost nothing, and in some cases just a commitment, or direct debit, to contribute monthly. But, naturally, the more money I contribute, the quicker I’d be able to build wealth.

For example, if I were to maximise my ISA contributions, and add £833 a month into my portfolio, and actualise a return of 12%, it’d take me just 22 years to reach millionaire status.

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Of course, most of us can’t afford £833 a month. So the less we contribute, the longer it’ll take to get there. But as time goes by, the pace of growth will increase as we earn interest on our interest.

An important variable

In the above example, I’ve suggested actualising an annualised return of 12%. That’s quite ambitious for novice investors, but it’s certainly possible if we make the right investment decisions. To add some context, my daughter’s ISA has grown 28% since I opened it four and a half months ago. Six of her seven investments are in the green.

Equally, if we make poor investment decisions, we could lose money. And losses can also compound. This is why it’s important we do plenty of research and make informed, data-driven decisions.

One such stock I like the look of in the relatively buoyant market is Li Auto (NASDAQ:LI). The Chinese automaker has very strong valuation metrics despite surging 77% over the past 12 months — most of that growth has come since the turn of the year.

Li is one of a few new energy vehicle manufacturers to have turned a profit, and it’s on an impressive trajectory. Its range of PHEV (plug-in hybrid electric vehicle) clearly hit the spot in China, with many buyers still wary about the ranges offered by pure EVs.

With profitability and strong brand reputation achieved, Li recently launched its first all-electric vehicle. Deliveries of the flagship MEGA Max, touted by Li as the fastest-charging mass-produced car, will begin on 11 March.

Some investors may understandably be concerned about Li’s prospects outside of China as carmakers could get caught up the crossfire of trade wars. But it’s worth remembering that China is a huge market itself.

WIth a price-to-earnings-to-growth ratio around 0.5, I think Li remains a bargain. It could help me achieve a 12% or higher average annual return.

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.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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