Trying to save £1m in an ISA account might seem like an unrealistic target at first, but it’s possible. All you need is patience and a disciplined savings plan.
The £1m ISA account
When the government decided to increase the annual ISA account allowance from £15,240 to £20,000 in April 2017, it became a lot easier to build a £1m ISA.
It would have taken more than 66 years of saving under the old regime to hit this target. That’s excluding any interest earned on funds deposited. By comparison, if a saver maxed out their £20,000 ISA account limit every year, it would take 50 years to reach the £1m level.
If these figures make one thing clear, it’s that getting started as soon as possible is vital if you’re serious about building a £1m ISA account.
Invest your money
With a savings plan in place, the next step is to start investing your money. Investing is one of the easiest ways to grow your ISA account over the long run. Thanks to the power of compound interest, it’s easy to build a relatively small monthly contribution into a sizeable financial nest egg using this strategy.
For example, since 1983, the total return of the FTSE All-Share Index is around 9%. At this rate of return, an investment of just £100 a month would grow to be worth £1m within 48 years.
The more you can put away, the faster you can hit this target. With a monthly deposit of £500, it would be possible to hit the £1m mark in 31 years.
And if you make the most of your ISA account allowance every year, it would take just 19 years to make a million. That’s assuming an average annual rate of return of 9%.
Look to the long term
The best way to replicate this investment performance is to buy a low-cost FTSE All-Share tracker fund. Most online stock brokers let you invest in one of these funds every month from as little as £50.
A tracker fund is a much better option than picking individual stocks because this can be a time-consuming process. It’s also costly if you get it wrong. A significant investment loss can mean years of extra saving is required to make up for the cost.
What’s more, why it’s almost impossible to tell what the future holds for individual stocks, over the long term, it’s highly likely that the stock market will continue to rise. As long as the global economy continues to expand, the stock market should track economic growth.
That’s good news for investors who are willing to buy, hold, and increase their investments regularly. Indeed, trying to pick the perfect time to buy and sell stocks is nowhere near as important as the length of time you own investments.
That’s the simple strategy I plan to use to build a £1m ISA account.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.