How could we make a million with a stocks and shares ISA?
Well, for me the best way would be to start about 35 years ago. That’s what most of the 4,000 current ISA millionaires did, back in the days of the PEPs.
Clearly I can’t do that. I didn’t start until much later.
But I’ve been doing some math on how long it would take to make a million.
And it’s a revelation to see what a difference it can make for younger investors to get started as early as possible.
Use the subsidy
One key way to get the most out of a stocks and shares ISA seems clear. First of all, it is about contributing everything we can.
A few of the UK’s ISA millionaires were able to use their full contribution limit each year, currently at £20,000.
But we could still earn a million ISA with a little less cash than that. You just need the magic ingredient of time, along with the combination.
And the first years are the most important. In fact, investing early can make a big difference.
First million
Over the last 10 years, the average return on stocks and shares ISAs has been around 9.6%, and I’ve been doing some sums with that.
Now, I doubt that ISAs can do well in the very long term. There are risks and some years you will even lose money. But it’s a good enough figure to use in my comparison.
Take for example someone who invests £200 per month, earns that 9.6% per year and invests their cash dividend each year. They could have a million precious pounds tax-free in 40 years.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Two decades
After the first 20 years, they would earn just £138,000, much less than half the 40-year total.
And this is where it gets interesting.
Suppose our investor ISA then stopped. Over the next 20 years, they didn’t add a cent of new money, but simply reinvested the cash from their dividends. And he kept getting the same result.
By the time they turn 40, they would have more than £860,000 in their ISA. In the second 20 years, your £138,000 would still have increased six-fold, without any new money being added.
Now this is where it comes In fact interesting.
What about someone who didn’t start until they were 20, after our first millionaire wannabe stopped, and then stashed away £200 a month for the rest of their life?
Well, they would reach a million in another 40 years. But the one that started earlier and then stopped after 20 years… would have more than five million by then!
Even 200 years later, the first entrepreneur would still have five times as much money.
In fact, anyone who catches up might, ahem, never catch up.
Not in a millennium
No, investing £200 a month at 9.6% for 20 years and then not investing a penny more for the next thousand years… would still be better than starting 20 years later and investing £200 every month for a millennium.
AND that That’s why it pays to invest early.
