Without doubt, the Stocks and Shares ISA is the greatest wealth-creating investment product on the market.
Providing protection against capital gains tax and dividend tax, it gives investors much more financial firepower to grow their wealth. And with a generous £20,000 annual contribution allowance, those who can max out their accounts have a great chance of achieving financial security
With a £20k ISA, how much could you expect to make over the next 10 years? And what sort of stocks should you consider for blowout returns?
Risk vs reward
Naturally, the shares, trusts, funds, and other securities an investor buys will have a direct impact upon the money they make over time.
The rule is generally the riskier the asset, the greater the potential return (or loss). Some ISA users prefer to put their excess cash in defensive assets like utilities and consumer staples stocks, perhaps bonds as well. These can be less volatile, but typically provide a lower long-term return.
The best blend of risk and reward will differ among investors. But history shows a balanced portfolio across asset classes, sectors, and regions can deliver an excellent return without exposing one’s money to unacceptable danger.
What could a balanced portfolio look like?
Here’s an example of a well-balanced Stocks and Shares ISA:
Growth:
- Nvidia
- BAE Systems
- Apple
- Games Workshop
- AstraZeneca
Value:
- Diageo
- Lion Finance
- Greggs
- Merck
- Xtrackers MSCI World Value ETF (LSE:XDEV)
Dividends:
- Legal & General
- Verizon Communications
- Tritax Big Box REIT
- SSE
- Global X SuperDividend ETF
What makes this portfolio so special? You’ll quickly see that it’s set up for growth, value, and dividends, which can provide a stable return across the cycle. The first two categories are included for capital growth, and the latter for reliable passive income.
You’ll also notice it covers a range of sectors from pharmaceuticals and defence, through to semiconductors, insurance, and retail. And it’s packed with multinational companies, which protects returns from weakness in one or two geographies.
Finally, thanks to the inclusion of two exchange-traded funds (ETFs), the portfolio provides exposure to a total of 530 global shares. Funds like these can supercharge an investor’s portfolio without meaning they have to compromise on returns.
A top fund
Take the Xtrackers MSCI World Value ETF, which holds shares in roughly 400 different companies. It’s delivered an average annual return of 13.4% over a five-year horizon.
The fund tracks the performance of “large and mid-cap companies from global developed markets” based on criteria like price-to-book (P/B) ratios and price-to-earnings (P/E) multiples.
Its strategy is built on the idea that the shares it holds will rise when the market wises up to their excellent value. It’s an approach that’s proved massively successful, as those returns since late 2020 show.
Like any stocks-based ETF, this Xtrackers product could fall when broader share markets drop. But on the plus side, a focus on cheap shares can limit any downside.
With the whole portfolio I’ve described, I think an annual return in line with the stock market average of 9% is possible. If so, this could turn a £20,000 ISA today into one worth almost £50k (£49,027) after 10 years.
