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I want to know how effective a stocks and shares ISA can really be. I know they have made many millionaires. But could it help me retire years before my official retirement age?
I get a deposit limit of £20,000 a year with my ISA. When the day comes that I decide I want to withdraw my money, I won't pay any taxes.
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That will help me maximize my returns, which I can then use to enhance my retirement.
My goals
That's why I want to leave work as soon as possible. How do I plan to do it?
First and foremost, I'm starting now. Being in my twenties, I have time on my side. You could wait until later to start saving for the future. However, I know how beneficial it will be to have my money active in the stock market for as long as possible.
The end of the tax year is approaching, which means the deadline to invest in my ISA is approaching. I could wait until next year to start, but I don't plan to stop there.
Second, I'm buying dividend stocks. The reason is simple. With the payments I receive, I reinvest them in the purchase of more shares of the companies of which I am a co-owner. That's an effective way to build wealth faster.
My plan
I have my goals set. I'm using the power of time and targeting dividend stocks. But what's next? What should I buy?
Right now, ITV (LSE: ITV) catches my attention. The broadcasting stalwart has had a strong start to the year, with its shares up 12.7%. I hope this starts from here.
But rising stock prices haven't always been like this. In fact, the stock has been struggling recently. This is largely due to a weaker advertising industry. Advertisers are cutting spending due to factors such as the slow UK economy. As a result, the stock has fallen 47.7% over the past five years.
However, what attracts me the most is its 7% profitability. That's way above both. FTSE 100 and FTSE 250 averages. The company also announced a £235m share buyback plan for next year.
Despite its difficulties, I think the future looks bright for the business as it continues to shift its focus towards its digital platforms, including ITVX, as well as its ITV Studios business.
By 2026, ITV plans to generate at least £750m in digital revenue. Between now and then, it's also targeting total organic revenue growth of 5% annually for its studio operations.
If it achieves this, I think there is a lot of room for growth for its share price in the coming years. This is reinforced by its modest price-to-earnings ratio, just below 10.
An important key?
So is a stocks and Shares ISA one of the keys to retiring early? I think so.
If I apply the above, I am sure I can build a large enough investment fund. With the tax-free funds I have accumulated, I will apply the '4% reduction' rule and use the passive income to fund my lifestyle.
