The Motley Fool

Stop saving and start investing! How I’d turn £100 per week into a £1m ISA

Image source: Getty Images.

If I invest £100 per week for 20 years, the returns I could get could be greater than the amount invested. That’s because it could earn an annualised return of around 8% by investing in the stock market. After 36 years, one could hold a £1m ISA.

Indeed, studies have shown the return from shares in aggregate over a long period of time have been in high-single-digit percentages when annualised. Often, illustrations use the 8% figure.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I admit 8% doesn’t sound like much of a return. Okay, it’s far better than the returns I can expect from any cash savings account. But how will it make a £1m ISA? The answer is in the way compounding the gains accelerates returns over time.

How to compound my way to a £1m ISA

The process of compounding just means leaving all the gains invested so they can earn further returns along with the money put in. If I do that, returns will grow exponentially. And that means the returns will accelerate and get bigger over time.

And it’s amazing how those returns could grow. I plugged the numbers into an online compound interest calculator. The computation revealed that after 20 years of investing £100 per week I would have put in a total of £104,000. But by earning an annualised return of 8% over that 20 years, total returns would be around £144,151.

Isn’t that astonishing? After 20 years of investing £100 a week in a Stocks and Shares ISA, I could have an investment pot worth £248,151. And the calculator told me that if I keep doing it for 36 years, a pot would be worth just over £1m. In all, I will have paid in £187,200 but earned total returns of just over £827,000!

Years

Total deposits

Total returns (annualised 8%)

Investment pot

20

£104,000

£144,151

£248,151

36

£187,200

£827,000

£1,014,200

And that’s why so many people are keen to invest their money. It’s also why the number of ISA millionaires in the UK keeps rising. But what are the practicalities of setting up a programme of investment to aim for an outcome like this illustration?

Trackers, investment trusts, funds and shares

I’d begin by translating my £100-a-week investment into the monthly figure of just over £433. Indeed, many people receive their wages in monthly instalments, so it’s therefore easier to set up a monthly transfer into a Stocks and Shares ISA.

To start off my investment programme, I’d consider capturing those annualised returns by investing in low-cost index tracker funds such as those following the fortunes of the FTSE 100, FTSE 250 and America’s S&P 500 indices. Share funds are great because they offer diversification across many underlying shares. They also have investment thresholds as low as £25, ideal for accommodating one’s monthly investments.

Within a ISA, I could also consider managed funds, investment trusts and the shares of individual companies as funds grow. Many investors do that in the pursuit of higher annual returns.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any share 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.