Here’s how investing in UK shares could turn an empty ISA into a whopping £285K

UK shares offer this Fool the opportunity to build wealth through shrewd stock picking to offer the maximum dividends.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

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.

Read More

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.

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.

Quality UK shares that pay consistent dividends could be the key to building wealth, if you ask me.

I reckon it’s entirely possible to build a nice pot of money by following a careful plan and investing shrewdly.

Here’s how I’d approach this challenge.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Things I’d do

I’d start by opening a Stocks and Shares ISA. The big reason for this is the attractive allowance of £20K per year, as well as the fact that dividends earned are not taxable.

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.

Let’s say I was able to save and invest half of that, £10,000, to start with. Next, I’d then halve that again for future years.

Moving on, I need to pick the best stocks that offer me the chance of maximum returns. I want to ensure my dividends can pay me a good rate of return, as well as ensuring dividends are as safe as possible. For that reason, I’d look for firms that dominate their industry, or have a good set of future prospects to ensure the returns keep flowing. I’ll break down an example stock pick later.

Before that, though, let me do some quick maths. Using my example amount of £10K as an initial investment, and £5K each year after, I’d be left with £285,000 after 20 years. This is based on an 8% rate of return, and the magic of compounding helps too.

However, I must mention risks that could dent this overall pot. Firstly, dividends are never guaranteed. Plus, individual stocks come with risks that could hurt earnings and returns. Finally, despite aiming for a portfolio to earn an 8% rate of return, I could earn less, leaving me with less money.

Defensive example

One stock I’d love to buy if I was undertaking this plan is Supermarket Income REIT (LSE: SUPR).

Real estate investment trusts (REITs) are great dividend stocks, in my eyes. This is because they must return 90% of the profits they make from their income-producing property to shareholders.

Supermarket Income specialises in properties for supermarkets to operate their vast enterprises. This includes retail outlets, warehousing, and logistics facilities, and more.

I reckon Supermarket Income has defensive abilities too. This is because of the essential nature of supermarkets. We all need to eat, no matter the economic outlook.

From a growth view, a growing population in the UK, with more mouths to feed, means the business can look to grow its estate, earnings, and returns.

Looking at Supermarket Income’s level of return, a dividend yield of 8% is very attractive. It’s also in line with my ambitions as mentioned earlier.

Taking a look at some possible risks, the commercial property sector is under threat from high interest rates. This is because REITs need to borrow to fund growth. When rates are higher, this debt can be costlier. Plus, existing debt is costlier to service and pay down. I’ll keep an eye on this.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Sumayya Mansoor 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.

More on Investing Articles

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

£10,000 invested in Aston Martin shares at Christmas is now worth…

Aston Martin shares have fallen from above £10 in early 2020 to pennies today. Is this the perfect time for…

Read more »

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

Up 5% in the last crazy week! Are these 2 income stocks the ultimate FTSE defensive plays?

Harvey Jones picks out two FTSE 100 dividend income stocks that have actually climbed while stock markets are heading in…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

2 beaten-down UK shares that now look really cheap

Looking for cheap shares to consider for the long term? These two British stocks offer a lot of value right…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

As stocks tank, is this a rare chance for ISA investors to get rich?

Shares have collapsed globally and valuations are becoming, on paper at least, a lot more attractive. Dr James Fox explores…

Read more »

Investing Articles

2 strong FTSE 100 dividend shares to consider as recessionary risks increase

Looking for secure passive income stocks to consider buying as thumping trade tariffs loom? Here are two FTSE 100 dividend…

Read more »

Investing Articles

Can Greggs shares offer shelter from Trump’s tariff chaos?

Greggs' shares have plummeted in recent months. But with very little exposure to the US or tariffs, could the stock…

Read more »

Investing Articles

Income of almost 12%! 3 stunning FTSE dividend stocks now have double-digit yields

Harvey Jones is amazed by the sky-high income on offer from these FTSE 100 dividend stocks, but he's also aware…

Read more »

Investing Articles

As vehicle sales slump, should I buy Tesla stock on the dip?

Andrew Mackie assesses whether Elon Musk’s political leanings are destroying the Tesla brand or is now the time to be…

Read more »