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How I’d invest £25k in a Stocks and Shares ISA to make a million

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If I had £25k to invest today, I’d feel confident that I could generate a six-figure nest egg. Would I hit £1m? Possibly, depending on how many years I had left to retirement.

I’ll share some of my numbers with you later, but I’ll start by explaining how I’d invest £25,000 in the stock market as we head into 2021.

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What happens next?

I invest in shares for the long term — at least five years. But I always consider the current market environment when I’m buying. Right now, investors seem to be quite optimistic that Covid-19 vaccines will support a quick return to normal next year. Personally, I think we could find that the first half of the year is still pretty difficult.

When I’m thinking about how to invest, what I don’t want to do is buy shares that may already be priced for perfection. An example of this is FTSE 100 firm Just Eat Takeaway, which looks too expensive to me.

The good news is that I think there are still plenty of UK shares that look like good buying opportunities. Here are some I’d buy today. Naturally, I’d keep these stocks in a Stocks and Shares ISA to avoid any future tax bills.

How I’d invest: 20 good shares

As investors, we’ll never know everything about the companies we own. Bad things will happen occasionally, but diversifying reduces the impact of these problems.

For me, around 20 shares is the right size for a portfolio. I feel that’s concentrated enough to allow me to beat the market, but diverse enough to provide some protection against future problems.

I’d aim for a mix of income and growth shares. Any dividends would be reinvested in more shares until I reached retirement age, when I’d start withdrawing all the dividends for income.

Shares I’d buy

For exposure to the UK economy, I’d be interested in Morgan Sindall Group, which is involved in a wide range of infrastructure and building projects. Founder-CEO John Morgan still has a big shareholding. I rate his management very highly.

Consumer goods is another area I think should continue to do well. Unilever is the obvious pick here, but one alternative might be PZ Cussons, which is under new management and appears to be turning around its performance.

Similarly, I think ITV is heading for a strong recovery over the next couple of years. I believe this stock could double from current levels over time.

Looking further afield, Vodafone offers exposure to fast-growing African markets, plus a 6% dividend yield. For exposure to Asian growth, I’d consider a specialist investment trust, such as Templeton Emerging Markets.

Healthcare is one sector I think is essential for my portfolio. My top UK pharmaceutical pick at the moment is GlaxoSmithKline. I believe this FTSE 100 stock offers significant value (and a useful 6% dividend yield).

The long-term average annual return from the UK stock market is about 8%. With good stock selection, I’d hope to be able to achieve at least 10%. At that rate, I calculate that it would take around 38 years to turn £25k into £1m. Any extra monthly payments I could make would reduce this timeframe.

This is an example of how I’d invest £25k of my own cash today to build a £1m portfolio. I hope it’s been interesting.

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Roland Head owns shares of GlaxoSmithKline, ITV, Morgan Sindall Group, and PZ Cussons. The Motley Fool UK has recommended GlaxoSmithKline, ITV, Just Eat Takeaway.com N.V., PZ Cussons, and Unilever. 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.

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