How I’d try to turn a small ISA into £1,000,000 with this savings trick!

Regular investment in a tax-efficient Stocks and Shares ISA could be an effective way to build long-term wealth. It could even make me a millionaire.

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I love the Individual Savings Account (ISA). Products like the Stocks and Shares ISA, Cash ISA and Lifetime ISA let investors generate long-term wealth without having to pay a penny to the taxman.

While I own each one of these products, I invest the lion’s share of my extra cash each month in my Stocks and Shares ISA. And by using this well-tested savings trick I hope to supercharge my retirement fund over the coming decades.

Big returns

Keeping cash on account is a good idea, and I use my Cash ISA and Lifetime ISA for this purpose. This helps me to balance risk and to keep money on hand for a rainy day.

But as I say, I mainly use my Stocks and Shares ISA to hit my investment goals. Why? The return on UK shares stands at 8-10% over a long time horizon. This is far ahead of what I can expect to make with those other products.

Let’s say that I have £20,000 on hand to invest in British stocks. If I attained a 9% annual average return over 30 years, I would (excluding fees) have turned that into £294,612.

A model share

So what sort of stocks would I choose for my ISA? One I really like at the moment (and which I already own in my own portfolio) is Games Workshop (LSE:GAW).

Dating back to 1978, this FTSE 250 firm sets the gold standard in the field of tabletop games and miniatures. It’s a niche hobby but a highly lucrative one, and sales of Games Workshop’s Warhammer products are soaring across the globe.

Since the mid-2010s, the company’s share price has rocketed by more than 1,700%. And what’s more, dividends have (largely speaking) increased rapidly over that period, as shown in the graphic below.

YearDividend Per Share
2023415p
2022285p
2021185p
2020145p
2019155p
2018126p
201774p
201640p
201552p

While it faces a threat from the growth of 3D printing, I’m still expecting Games Workshop’s profits to keep soaring as it pushes into new geographies.

And it’s agreement with Amazon to produce Warhammer-based films and TV content could also take earnings to the next levels.

The route to £1m

That £294,612 I could make from UK shares like this would represent a pretty healthy return. But I think I could do even better.

If I invested some extra cash each month, I could essentially ‘hack’ the system and make some truly life-changing wealth. This is thanks to those impressive rates of return and the miracle of compounding, where I essentially earn interest on my interest.

If I could invest an extra £400 a month I would — assuming that 9% return remains unchanged over those 30 years — have a staggering £1,026,909 sitting in my account. I’d have become one of those legendary ISA millionaires.

There are stacks of top stocks to help me achieve this goal too. And right now many of them look pretty cheap by historical standards.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon and Games Workshop Group 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.

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