Despite devastating world news and negative headlines bombarding us daily, I still believe you can make money in the UK stock market. Patience, discipline and hope are vital, along with the ability to choose investments carefully. With these qualities, I think you’ll have what it takes to (potentially) become a Stocks and Shares ISA millionaire.
Look at some rough figures. If you start with £2k, then invest £300 a month for 40 years at an average return of around 8%, you’ll have well over £1m. Invest more and you’ll get there faster. But where should you invest?
I’d choose the FTSE 100 as it’s home to the top 100 UK-listed companies ordered by market capitalisation, essentially the biggest 100 businesses worth the most money. A Stocks and Shares ISA makes it easy to invest in these businesses directly or through index funds.
These companies include FTSE stalwarts such as Lloyds Banking Group (LSE:LLOY) with a market cap of £36bn, BP with its £89bn market cap and Vodafone Group (LSE:VOD) with a market cap of £40bn. These are each established in the heart of British consumerism but are they a good investment at today’s share prices?
Unfortunately, they face challenges. Lloyds depends on a prosperous economy, BP is up against climate change activists and future diminishing demand for oil and Vodafone is facing increasing costs and a slowdown in the 5G rollout.
With the coronavirus outbreak spreading and stock indices falling, it’s difficult to choose stocks to buy. Until we know the extent of the impact on financial markets and businesses, many stocks may have further to fall. But this could open up buying opportunities for investors. FTSE 100 stocks I like include Aviva, The London Stock Exchange Group and Auto Trader.
If you already hold a portfolio of stocks, I think it’s important not to panic-sell. The stock market has always recovered in the past, and I’m sure it will again. Also, keep your Stocks and Shares ISA balanced with a portfolio of diversified assets including equities, bonds, and index funds.
Compounding is the secret to success in growing a million-pound portfolio through your Stocks and Shares ISA. Compounding is when you generate interest on your interest, it works on your capital, but also on your dividend income.
Many FTSE 100 companies offer a reliable dividend yield. The Lloyds share price has a dividend yield of 6%, BP one of 7% and the Vodafone share price has a yield of nearly 5%.
The time taken to reach millionaire status depends on your financial circumstances, the interest rate of return on your investments and the period you can afford to wait.
Greed, fear and the human factor
It’s inevitable that you’ll get greedy or fearful or too focused on one sector to see the bigger picture. Even successful investors have their down days and many have experienced severe financial losses.
At age 30, Charlie Munger was broke and dealing with personal heartache, but rather than wallowing in self-pity, he joined Warren Buffett at Berkshire Hathaway and became a multi-billionaire.
One of their primary strategies is to focus on income over capital, reinvesting dividends and watching them compound to riches. Although capital gains are also important over the long-term, intermittent fluctuations are unavoidable along the way. But, if the focus is on income rather than capital, eventual growth should prevail.
Income-seeking investors like you won’t want to miss out on this timely opportunity…
Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!
But here’s the really exciting part…
Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...
He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.
With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.
Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader and Lloyds Banking Group. 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.