How I’ll aim to turn an empty ISA into a £100k nest egg buying cheap shares in 2025

Christopher Ruane explains how he thinks taking a long-term approach to buying cheap shares and holding them could help him build wealth.

| 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.

One of my plans for next year is a lot like my plan for this year. That is to take advantage of the ability to invest in a Stocks and Shares ISA then use it to try and build long-term wealth. To do that, I want to stuff it full with cheap shares.

But I will not just buy shares because they have a low price – by “cheap” I mean buying into quality companies for less than I think they are worth.

Here is the approach I expect to take in 2025 (and beyond, as a long-term investor).

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

Climbing from zero

Starting with an empty ISA is not necessarily a problem. After all, I can put money into my current ISA until the start of the next tax year, at which point I can take advantage of another year’s ISA contribution limit.

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.

Here, I will illustrate my approach to building wealth using an ISA that has £20k added to it, whether as a lump sum or through my preferred approach of regular contributions over the course of the year.

To turn a £20k ISA into a £100k next egg will mean me increasing its value fivefold. That is no easy undertaking (to put it mildly).

However, if I take a long-term approach, I think it is possible. Getting down to numbers, imagine I compound my ISA at 10% annually. Its value will top £100k after 17 years.

Why value matters

I could try to achieve that level of compounding through buying dividend shares. Some FTSE 100 shares offer high yields close to 10%.

But dividends are never guaranteed, of course (like anything in the future except death and taxes). But income shares are an important part of my ISA.

Still, I think buying cheap shares (with or without dividend prospects) may be the key to my approach here.

If I buy shares for less than I think they are worth, hopefully over time that price gap could close. Strong business performance may also help push the share price up over the years. On top of that, if I do buy shares that I expect to pay dividends in future, hopefully buying them at a low price could push up my prospective yield.

Hunting for value

You may have spotted a possible flaw with my plan. If the shares I buy are so promising, why are they cheap? All investments involve risk and in some cases my view of risk and reward may be different from that of the market as a whole. That, I believe, is an opportunity.

As an example, consider my investment in Card Factory (LSE: CARD). I only bought this share last month, but it has risen 11% in that short time. It also yields 6.1%.

The long-term picture has been less rosy. A 40% fall in five years has offered me the chance to buy the share at what I see as a cheap price.

Created with Highcharts 11.4.3Card Factory Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

That reflects risks, including the possible impact of steeply-rising postage rates may have on the number of cards Britons send.

Still, I think the company’s in-house production capabilities, large network of shops and competitive pricing all help give it a commercial advantage.

To me, the share still looks cheap. I plan to keep holding it.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

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 positions in Card Factory Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »