It might also be of interest to an investor aiming to replace their salary one day. But how realistic is it to use stock-based investments to ‘earn’ a living? Let’s crunch some numbers.

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Replacing a job with a Stocks and Shares ISA

According to the Office for National Statistics, the average full-time salary in the UK is £39,039. If an investor also factors in a State Pension income of around £12k, they will need an income of £27k from a Stocks and Shares ISA.

The widely-used 4% rule suggests that retirees can safely withdraw 4% of their portfolio for at least 30 years.

Using this withdrawal rate, I calculate an investor would need a pot worth £676,650.

There are a few ways to target such a sum. These levers consist of time, investment return and pounds invested. For instance, such a sum could be achieved by investing £1,000 a month for 20 years, at the average yearly investment return of 10%.

The less someone invest, the more time is needed. Alternatively, it could also be achieved with £500 a month, for 15 years, but at a much larger (and much less likely) 25% annual return.

It’s certainly a bigger challenge. But to target such a large performance, investors would need to search for individual shares that could beat the market over time.

Looking at past winners

One such past winner is fantasy miniatures business Games Workshop. It has managed to grow its share price by 30% a year over the past 15 years. And that’s just one example.

But how to find these top-performing shares? Well, the first thing to note is that Games Workshop was a much smaller company back then. Valued at £130m, it would have been classed as small-cap share.

Smaller companies can often grow much faster than larger ones. But bear in mind that they can carry greater risk and can often be more volatile.

A tiny titan that could boost ISA returns

Today, MS International (LSE:MSI) has a market capitalisation of £257m, and mainly operates in defence and security markets. It’s not widely talked about, but for investors looking for undiscovered gems, that’s a good thing.

This small business has delivered exceptional earnings growth of 53% annually over the past five years. Much of that was driven by US defence contracts. In fact, just recently it announced a $42m contract with the US Navy, which should boost sales significantly.

MS should be supported by rising defence spending globally. At the 2025 NATO Summit, all 32 members pledged to allocate 5% of GDP annually by 2035 towards defence and security spending.  

That said, it could take some of these countries a few years to achieve these targets. Also bear in mind that government contracts can often face delays and budget cuts over time. And changing governments can alter priorities.  

I like its 29% return on capital employed as it shows an efficient use of capital. And despite having many growth characteristics, it still offers a reliable 2.1% dividend yield. Overall, I’d call it a high-quality business that’s available at an attractive valuation. And owning shares just like this one could play a big part in building a sufficiently large Stocks and Shares ISA.

The post How much do you actually need in a Stocks and Shares ISA to replace your full-time salary? appeared first on The Motley Fool UK.

The thing is though, some are some lesser-known UK defence shares that have absolutely smashed the FTSE 100 big-hitter. Here’s a look at two such stocks.

Contracts with the US Navy

First up, we have MS International (LSE: MSI). It’s a small British engineering company that operates in a few industries including defence.

It’s having a lot of success in the defence space at the moment. For example, in early October, the company announced that it had won a $34.5m contract with the US Navy to supply stabilised gun mounts.

Meanwhile, in the year to the end of April, the company delivered naval weapons systems for both the US and Germany. It also fulfilled various orders from the Middle East for its VSHORAD land-based counter drone weapons systems.

Given this success, the company’s share price is on fire. Over one year it’s up about 50% while over three it’s up about 400% (about three times the share price return of BAE Systems).

Is the stock worth a look today? I think so – it’s not expensive.

Currently, it trades on a trailing price-to-earnings (P/E) ratio of 18. That strikes me as a very reasonable valuation given the company’s growth (revenue has climbed from £62m to £118m in the last four financial years).

Of course, a risk is a slowdown in contract wins. This could put pressure on the share price.

With NATO countries set to ramp up their spending on defence in the years ahead though, I see a lot of potential here.

Moving from space to defence

The other stock I want to highlight is Filtronic (LSE: FTC). It’s a technology company that specialises in wireless communications technologies.

This company has had a lot of success selling products to SpaceX in recent years. However, it’s now branching out into the defence market (and having success here too).

For example, last year it announced a £4m contract with BAE Maritime Services (a subsidiary of BAE Systems) to design and develop monolithic microwave integrated circuits (MMICs). These are chips designed for extremely fast wireless signals.

More recently, in July this year, it announced that it had won a £13.4m contract with a leading European defence company. This is to supply high-performance modules for an electronic sensor system.

Zooming in on the share price here, it has had an amazing run. Over one year, it’s up 70% and over three it’s up 970% (about 7.5 times the return of BAE Systems).

Is this growth stock worth considering for a portfolio? I believe so.

It’s higher up on the risk scale as it has a lofty valuation (the P/E ratio is about 42) and there’s no guarantee that contract wins will keep coming in. But taking a five-year view, I see a lot of potential.

And so do a few of my colleagues…

The post 2 UK defence stocks making the BAE Systems share price look silly appeared first on The Motley Fool UK.

There are a lot of individual UK stocks that delivered much higher returns over that timeframe, however. Here’s a look at two that have made investors a big amount of money over the last five years.

A fast-growing defence company no one has heard of

First up, we have MS International (LSE: MSI). It’s an engineering company that operates in four key areas: defence, steel forgings, corporate branding, and petrol station superstructures.

Now, this may not sound like the most exciting company. But wait until you see its share price.

Over the last five years, it has risen from around 117p to 1,550p – a gain of about 1,225%. This means that anyone who stuck £5,000 on the stock five years ago would now have over £66,000 (they would have also received dividends).

Can this stock keep rising? I think so.

What looks really interesting to me here is the company’s defence exposure (70% of group turnover). This could potentially be a huge source of growth in the years ahead as NATO countries spend more on defence.

Note that last month, the company won a $34.5m contract with the US Navy to supply stabilised gun mounts. Given that it has a market cap of just £262m today, that’s a huge deal.

Zooming in on the valuation, it isn’t high. Last financial year, earnings were 90p per share, so the stock trades on a trailing price-to-earnings (P/E) ratio of just 18.

A risk here is lumpy revenues. In the defence industry, sales cycles can be long.

Taking a long-term view though, I see a lot of potential. I believe the stock is worth considering as a growth play.

Improving transportation systems in the UK and abroad

The other stock I want to highlight is Journeo (LSE: JNEO). It’s an ‘intelligent systems’ provider that offers connected solutions for the transportation industry.

With its solutions, customers (bus and rail operators, airports, etc) can reduce costs and improve efficiency significantly. Note that it operates in the UK, Europe, and North America.

Like MS International, Journeo has seen its share price surge in recent years. Over the last five years, it has climbed from 47p to 490p, turning £5,000 into around £52,000.

I wouldn’t be surprised to see it continue climbing in the years ahead. In September, the company said it had a £80m sales pipeline (its market cap is only £87m).

Now, lumpy revenues are a risk here too. These could lead to share price volatility.

Those with a long-term mindset, however, may want to take a closer look at this stock. In a world that’s rapidly undergoing digital transformation, I see a lot of growth potential.

But there are plenty of other exciting growth stocks that are also worth checking out right now.

The post 2 under-the-radar UK stocks making investors an outrageous amount of money appeared first on The Motley Fool UK.