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3 simple steps I’d take today to build a £1m ISA

Building a £1m ISA may seem to be an impossible task at the present time. After all, the FTSE 100 and the FTSE 250 have faced a period of uncertainty in recent months, with risks such as a global economic slowdown and Brexit seemingly weighing on investors’ minds.

However, obtaining a seven-figure portfolio over the long run may be more achievable than many investors realise.

In fact, through buying good value shares that pay rising dividends, you can generate high returns in the long run. As ever though, ignoring short-term market ‘noise’ may prove to be crucial in improving your financial prospects.

Value stocks

Although the FTSE 100 and FTSE 250 may face uncertain futures, this could present a buying opportunity. A wide range of mid and large-cap shares appear to be trading on low valuations at the present time, with investors having factored in the prospect of weaker growth due to global economic risks.

While there is scope for further declines in share prices, in the long run, both indices have always recovered from downturns to post record highs. Therefore, buying undervalued stocks at a time when their futures may be more uncertain than they have been in recent years could be a means of improving your long-term total returns.

Dividend stocks

As well as cheaper stocks, there may also be an opportunity to purchase dividend shares at the present time. The FTSE 100 and FTSE 250 both offer relatively high dividend yields when compared to their historic averages. This could allow an investor to maximise their income returns – especially if they are able to diversify across a range of income shares.

Furthermore, dividends may provide a large proportion of the stock market’s total returns in the coming months. In other words, with risks facing the world economy being high, capital growth may be somewhat limited in the short run. As such, obtaining a high yield from your portfolio may provide you with a better chance of generating positive total returns that improve your prospects of making a million.

Market noise

As ever, investors looking to build a seven-figure portfolio should ignore market noise. This is where investors voice their concerns about the outlook for the stock market and wider economy. They may determine that there will be a major recession and bear market, and that investors should sell riskier assets in order to limit their losses.

While such views may prove right in the short run, avoiding riskier assets such as shares over the long run is unlikely to lead to a £1m ISA. With the stock market’s track record showing that periods of decline are generally overcome by longer periods of growth, taking risks while other investors are fearful could increase your chances of obtaining a portfolio of stocks that offers a favourable risk/reward ratio. This could have a significant impact on your chances of making a million over the long run.

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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.