Many investors have used Stocks and Shares ISAs to build a million-pound fortune. This target may seem like an unrealistic goal at first, but it really is possible. All that’s needed is a dedicated saving and investing plan. And little patience. Today, I’m going to explain the strategy I’m using to invest £500 a month with the goal of making £1m.
Stocks and Shares ISA investing
There are a couple of strategies investors can use to build wealth in a Stocks and Shares ISA. The easiest way is to buy a portfolio of low-cost passive tracker funds.
These funds track the performance of their underlying index. So there’s no work involved, apart from picking the funds in the first place. The strategy can produce steady returns over the long term. However, as trackers are only designed to follow their underlying index’s performance, they won’t outperform the market.
As such, to achieve a higher return than the market, buying an actively-managed investment fund or investment trust is a good option. I prefer investment trusts for my Stocks and Shares ISA. Unlike other actively-managed funds and trackers, trust managers have more flexibility on where they can invest.
What’s more, the fees charged by the managers of these investment vehicles are usually lower than other actively-managed investment funds.
Another option available to investors who want to try and outperform the market is to buy individual stocks. This is a strategy I follow, alongside owning investment trusts. I focus on buying high-quality income and growth stocks, such as drinks giant Diageo.
I’m also interested in acquiring gaming company Games Workshop for its high-profit margins and strong return on invested capital.
Some other companies I already own in my Stocks and Shares ISA include insurance group Admiral and consumer goods giant Unilever. I believe both these enterprises provide a defensive level of income and growth for the portfolio. I think they also exhibit qualities that can’t be found in many other businesses on the market.
The road to a million
By using the combination of individual stocks and investment trusts outlined above, I think I’ll be able to build a million-pound portfolio over the long term.
Indeed, my research shows the investments I own have the potential to produce a mid-teens annual return for the foreseeable future. That might seem excessive at first but, by comparison, over the past three-and-a-half decades, the FTSE 250 has produced an average annual return for investors of around 11%. I’d be able to achieve a similar return by just buying a low-cost FTSE 250 tracker fund.
Based on my analysis, I believe my Stocks and Shares ISA portfolio would hit the £1m mark within 25 years from a standing start. That’s assuming I stick to my monthly contribution of £500.
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Rupert Hargreaves owns shares in Admiral Group, Diageo, and Unilever. The Motley Fool UK owns shares of Games Workshop. The Motley Fool UK has recommended Admiral Group, Diageo, 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.