The idea of building a £1m ISA account may sound far-fetched to investors who are at the start of their investment journey. After all, it takes a long period of consistently high returns and contributions to an ISA in order to generate seven-figure status.
However, by following these simple steps, it is possible for anyone to build a substantial nest egg which can be used in later life.
Cost management
Perhaps the most neglected part of ISA investing is cost management. This takes two central themes. The first is choosing the right provider, while the second is keeping commission costs to a minimum.
At the present time there are a number of companies which offer ISA services. Some offer accounts that cost the equivalent of £1 or less per month in management costs. However, others charge significant sums for what are often only marginally more diverse options when investing. Clearly, every investor should try and keep charges to a minimum, but for new investors with relatively small sums this could be of even greater importance.
In terms of keeping commission costs down, one way of achieving this is to use a strategy of buy-and-hold. This is a simple means of not only reducing turnover within a portfolio, but may also allow an investor to capitalise on the long-term growth potential that is available via a number of different stocks at the present time.
Sensible stocks
Finding the right stocks for a new ISA can be challenging. It is difficult to know where to start and with Brexit ongoing, the current time is not an easy one to be a new investor.
However, by applying simple investing techniques it is possible to unearth the best stocks available at any given time. For example, focusing on valuations after the rise in the value of stock markets across the globe could be a shrewd move. Similarly, with the decade-long global deflationary environment seemingly coming to an end, buying shares that are able to cope with higher levels of inflation may be a sensible move. Likewise, stocks that have balance sheets that can withstand higher interest rates could also be a good idea.
Clearly, with an ISA usually having a long-term focus it may be possible to take risks in order to achieve a higher rate of return. But diversifying between sectors and geographies could still be the right move, with Brexit having the potential to be a future catalyst on the UK’s economic performance.
Takeaway
While generating a seven-figure ISA is tough, it is possible. There are estimated to be several hundred ISA millionaires and with the annual allowance having increased in recent years, it may now prove to be easier than it was in the past.
And by focusing on simple ideas such as keeping costs down, adopting a buy-and-hold strategy, as well as focusing on purchasing sensible stocks, your ISA could provide you with greater financial freedom in later life.
