While saving plays an important financial role, it doesn’t come close to the wealth-building potential of investing in FTSE 100 stocks using an ISA.
The UK’s flagship index has enjoyed a stellar run of late, delivering an impressive 22.3% total return over the last 12 months.
But even when zooming out to the longer term, the average annual return is only 8%. That’s still double what most savings accounts currently offer. And with interest rates steadily being cut, this gap’s only going to get wider.
With that in mind, let’s explore how investors can use the FTSE 100 to target a seven-figure portfolio.
Unleashing the power of compounding
Assuming that the FTSE 100 continues to deliver an 8% annualised return in the long run, the journey to building a £1m ISA is simpler than ever. All an investor needs to do is steadily drip feed money into a low-cost index tracker each month. And wait.
Adding just £500 each month at this rate of return will mean a brand-new portfolio today will enter millionaire territory in around 34 years.
For the lucky few who can max out their annual ISA allowance with £1,667 a month, the timeline is shortened to just 21 years. By comparison, maxing out a Cash ISA offering only 3% will take a decade longer.
But investors can potentially speed up the wealth-building journey even further.
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.
Investing in the best
If an investor can identify which companies are worth buying and which ones to avoid, the journey to becoming an ISA millionaire can be drastically shortened. Just ask anyone whose been drip feeding money into the London Stock Exchange Group (LSE:LSEG).
Over the last 15 years, the UK stock market operator and data analytics group has generated a total return of 1,302%. That’s the equivalent of 19.2% a year, enough to transform a £1,667 monthly investment into £1.7m!
Even with just £500 a month, investors who have been consistent since March 2011 are now sitting on half-a-million pounds. And if the compounding journey continues for another four years, they’ll have reached millionaire territory.
So the question now is, should investors still consider this business for their ISAs in 2026?
Bull versus bear
While the UK IPO market has been soft in recent years, the London Stock Exchange Group has been busy diversifying into data analytics, unlocking impressive and recurring free cash flows in the process. And looking at the firm’s latest results, this strategy’s paying off nicely.
All segments of the business are still growing steadily, while the higher-margin analytics segment is gradually helping boost profitability. And yet, the share price has tumbled close to 20% over the last 12 months, creating what institutional investors believe is a buying opportunity.
However, unless the UK IPO market starts to pick up, the current trajectory of this business suggests data analytics will be responsible for most of the long-term growth. Yet with artificial intelligence (AI) becoming increasingly more capable, there’s growing uncertainty about the longevity of the current strategy – a critical risk that investors must carefully consider.
Nevertheless, with management making moves to adopt AI rather than be disrupted by it, these fears may prove to be overblown. And that’s why, despite the risk, investors may want to inspect this potential opportunity a little deeper.
