The Stocks and Shares ISA is a phenomenal wealth-building tool exclusive for UK investors. And while there’s a maximum contribution limit of £20,000 per tax year, that’s more than enough to build substantial wealth in the span of a decade.
Most Britons don’t use their full £20,000 allowance. In fact, the latest figures for the 2023/24 tax year revealed that, on average, only around 25-30% of this allowance was actually used.
That’s not entirely surprising since the median after-tax salary in the UK is close to £29,000. And putting aside 70% of income towards savings & investments just isn’t practical, especially with the cost of living going up and families to take care of.
However, for those lucky enough to earn a higher salary or be on the path towards gaining one, maximising the yearly ISA allowance might be possible. So how much money could be unlocked with this wealth-building tool over the next decade?
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.
Projecting wealth
The gains generated by a Stocks and Shares ISA ultimately depend on the performance of investments made. That means smart investments could turn into some phenomenal gains. Of course, should an investor make bad decisions, it could actually destroy wealth rather than create it.
On average, the UK stock market has delivered close to 8% annualised gains over the long term. Across the pond in the US, this figure has been closer to 10%. So assuming a portfolio can generate a return within this range, investing £1,667 a month (to max out the ISA allowance) for 10 years would build a portfolio worth up to £341,500.
That’s certainly nothing to scoff at, but what if an investor wants to be greedy and aim for more?
Earning larger returns
Instead of trying to replicate the average stock market performance with index funds, investors can buy shares in a handpicked collection of individual businesses. There’s no denying this approach is far riskier and requires more dedication. But it also opens the door to potentially superior returns from stocks like RELX (LSE:REL).
Over the last decade, this information and analytics specialist has achieved an average annualised gain of 13.9%, enough to push a maxed-out Stocks and Shares ISA close to the £430,000 mark. And with artificial intelligence (AI) demand on the rise, the group appears perfectly positioned to continue capitalising on tailwinds.
Does that mean the stock will continue to generate close to 14% each year between now and 2035? Well, nothing’s guaranteed.
For all its promising and in-demand offer, the group’s still prone to operational risks that could disrupt the wealth-building process. For example, missteps in AI deployment across its products could push customers into the arms of competitors.
At the same time, the company manages a vast portfolio of sensitive data that makes it an ideal target for cybercriminals. Needless to say, a failure to adequately defend its IT infrastructure isn’t likely to bode well for the firm’s reputation or its share price.
Nevertheless, with an impressive track record and long-term potential, RELX definitely seems like a business worth further inspection for investors seeking market-beating returns in their maxed-out Stocks and Shares ISA.
