The key reason why so many people invest in stocks is to make a tangible monetary gain. Even though I immensely enjoy the process of researching a stock and making the call to buy, hold or sell, I’m in it for the money too! And I want to emulate one of the success stories over the past decade or so with retail investing — the emergence of ISA millionaires. These are individuals who’ve made use of a Stocks and Shares ISA and invested over several years. The end product (boosted by having the profits sheltered from tax) means that a million pound portfolio is a reality for them. So how can we follow suit?
Take small steps
Starting from zero and wanting to have a portfolio worth a million is a great aim. But you need to start with small steps. After all, the 2020 Stocks and Shares ISA limit is £20,000. So start by taking it a year at a time. I’m a fan of buying small chunks regularly, say on a monthly time frame. So I’d look to invest a couple of thousand a month into stocks, or more if I spot a great opportunity. Even though the seven-figure target is a lot different to a four-figure investment, that’s the way it has to be done. Don’t get discouraged by this, it’s the path all ISA millionaires had to take.
Target high-growth stocks
Once you’re on your way, the next tip is to target high-growth stocks. Even though it’s a good idea to add some income-paying stocks into your portfolio, it’s the growth stocks that are really going to accelerate the path to seven figures for your Stocks and Shares ISA. This is because growth stocks have the potential to offer very high returns. For example, if you’d invested in Ocado in March, you’d have seen a return of over 100%! Some other high-growth stocks that you can look to buy now are mentioned here.
Don’t waste the stock market crash
Some are put off from starting a Stocks and Shares ISA due to the volatility we’re seeing at the moment in the stock market. Don’t be. The stock market crash is a great opportunity to buy into large firms at a historical discount. The crash allows you to buy firms that are trading at low price-to-book ratios or price-to-earnings ratios. Since we’re buying with the long term aim of getting to a million, these stocks can form the backbone of a portfolio. A good example of a stock that has been heavily sold (and potentially oversold) is HSBC. The share price is down almost 40% this year.
ISA millionaire status
These three tips help to show that getting to a million isn’t unachievable. By investing the full £20,000 allowance this year, and investing the full allowance in coming years, the numbers add up. In less than two decades you’d have reached the million pound mark (assuming a 10% annualised return). Of note, the first £20,000 would be worth almost £135,000 alone! So really, let’s get cracking right away.
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Jonathan Smith does not own shares in any firm mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.