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How I’d invest £10k in an ISA to make a million by retirement

At the Motley Fool, we’re always talking about the sums you can accumulate by investing in shares for the long term.

But a million? Well, there are an estimated 1,000 ISA millionaires in the UK, so it’s very much an achievable target. But it is likely to take a fair amount of hard work and dedication to get there, though if you’re the kind of person who’s prepared to make the extra effort, I say you can do it.

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Lump sum

Why £10,000? You certainly don’t need a lump sum to get you started in investment, and even just stashing away a few pounds per day can make a difference. But if you do have a chunk of cash to get you going, you can start seeing meaningful results that much sooner.

Several people I know started investing when they received a windfall, and £10k is the kind of sum that people quite often receive. I had £10k once from an employer’s share option scheme, and a similar amount selling a flat (and moving somewhere cheaper), and there must be many on higher incomes whose annual bonuses are around that level or even more.

And the ultimate lump sum to invest for retirement is, perhaps, the cash you might liberate from a company pension scheme and transfer to a SIPP, and that could be a lot more than £10,000.


According to Barclays, the UK stock market has been returning 4.9% above inflation for a century or more, and I can’t see that stopping any time soon. In fact, I think we could be in for a few years of better returns, and I’ll come to that shortly.

If inflation sticks at around 2%, which is close to the Bank of England’s long-term target, the Barclays figure would suggest a return of 6.9% per year. With all returns reinvested, that would turn an initial £10,000 into a million in, well, 70 years. Now, I know I’m talking about the long term, but I doubt many people reading this will be thinking of working and investing for quite that long.

The latest figures from AJ Bell suggest to me that we’re in a spell when a lump sum investment could do significantly better than that, because FTSE 100 dividends are unusually high these days. Of the whole index, 26 stocks are on forecast dividend yields of 6% or better, with an average among them of 7.8%.

Top yields

If you invest now, you can lock in those yields, and a £10,000 investment pot is plenty to get a good spread across the 26 companies. It’s only approximately £385 per stock if you go for all of them, but you can be a bit selective and, say, choose one from BP (6.2%) and Shell (6.4%), one from Aviva (7.1%), Legal & General (6.3%) and Standard Life Aberdeen (7%), one from Taylor Wimpey (10.6%), Persimmon (9.5%) and Barratt (7.2%), and so on.

If you assume share price gains in line with inflation of around 2%, a total return of 9.8% would turn your £10k into £1m in 50 years. That’s still a long time, but you could bring it down a lot by adding regular monthly savings. Just £200 per month on top would get you to a million in 36 years, and if you invest £500 per month you could get there in 29 years.

And in an ISA, it’s all tax-free.

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Alan Oscroft owns shares of Aviva and Persimmon. The Motley Fool UK has recommended Barclays. 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.