How much could £ 20K earn and actions earn in the next decade?

Like many people, I use ISA actions and actions as a vehicle for long -term investment.

But how much can an investor win using that approach?

Understand the four variables

There are four things that produce the answer to that question and I will explain each in turn below. They are the inverted amount, the movement of the price of shares, dividends and costs.

Variable one: inverted quantity

This may sound easy, since I have already specified a £ 20K Isa as an example.

But along the way, if dividends were received, an investor would have an option. They could receive them as an effective one, or could keep them in the ISA wrapping to reinvest (known as compound).

Therefore, a £ 20K isa could end up inverted more than £ 20K through it, without the investor putting a penny more after the initial amount.

Variable two: movement price movement

This is quite simple to understand. If the prices of the actions go up, the ISA could be worth more a decade from now on. If they fall, it could be worth less.

That explains why it is not always enough to fill the actions and actions of ISA with brilliant businesses. It also matters how much An investor pays for them.

Variable three: dividends

As I mentioned, dividends could increase the long -term value of the ISA, either in cash, or reinvested in more actions.

Variable four: costs and rates (even small!)

Something that can be forgotten (but should not) that the rates and charges associated with the actions and actions of ISA can obtain yields.

Is 2% a lot?

It may not sound it. But consider this: a 2% commission annually with £ 20K would have cost an investor More than £ 3,600 After a decade.

The choice of correct actions and actions can be a key determinant of how it works.

Creation of long -term wealth

Imagine that an investor has an ISA that includes actions that, on average, produce an annual growth compound of 10%.

That would be a combination of sharing price gain, dividends (and compounds) and the negative effect of Isa's costs and rates.

After a decade, that Isa would be worth it £ 51,870. Not bad at all!

Find actions to buy

That example depends on finding actions that deliver a 10% compound growth annually on average, after ISA's costs.

A part that I have to do that can do that is Ftse 100 Asset Manager M & g (LSE: MNG). Its dividend yield is 9.5% and the company aims to maintain or increase its dividend by action annually.

For five years, the price of M&G shares has fallen by 13%.

But the past performance is not necessarily a guide of what will happen next. I hope the price falls and a market capitalization of only 5 billion for such a large company means that there is a scope for a greater assessment in the future.

I worry that customers get more money from the main business of what they put. That happened in the first half of last year and if he continues, the profits could suffer.

But with a strong brand, a large customer base and a long -term resistant demand for asset management, I have no plans to sell my M&G participation.