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stocks and shares ISAs are very powerful investment vehicles. With these tax-advantaged accounts, it is possible to accumulate a substantial amount of money over time.
Here, I'm going to outline how I would try to build a £250k ISA from scratch, starting todayLet's dive into it.
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, and does not constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decision.
Regular savings
Let’s say I already have a stocks and shares ISA open. The first thing I would do is start a regular savings plan. I would prioritise ISA savings over non-essential expenses and try to contribute as much as possible to my account.
Please note that with this type of ISA, it is possible to contribute up to £20,000 a year. This is a very generous amount and not many people can afford to put that amount of money into an ISA every year.
Investing my money
Now, when it comes to building long-term wealth, saving money is only part of the equation. The most important part is Invest (investing money in assets that will generate higher returns than savings accounts over the long term).
So the next step would be to make my money work for me by investing it. And there are many different strategies I could follow in this regard.
I could simply put my money into index funds that aim to track a broad stock market index. An example is the iShares Core MSCI World UCITS USD ETF (Cumulative) (LSE: SWDA) is an exchange-traded fund (ETF) that tracks the MSCI World Index (a well-known global stock market index).
The beauty of this product is that it provides access to over 1400 stocks (including big names like Apple, Nvidiaand Tesla). Another advantage is that the commissions are very low, only 0.2% annually.
It's worth noting that this product has a large exposure to the US stock market and the technology sector. That's not necessarily a bad thing given the direction the world is heading, but it does add some risk.
However, it should perform well over the long term. Over the past ten years, it has generated very solid returns (although past performance is not an indicator of future returns).
Aiming for high returns
Alternatively, you could opt for actively managed investment funds that aim to defeat Stock indices. They often have a bad reputation, but there are some good ones. Fundsmith SharesFor example, it has achieved brilliant returns since its inception in 2010. Its focus is on high-quality stocks.
A third option would be to invest in individual stocks like Apple and amazonThis strategy would be a bit riskier, but it could greatly increase my profits if I pick the right stocks. amazon stock, for example, is up about 1,000% over the past 10 years.
I want to point out that these strategies are not mutually exclusive. In fact, I would apply all three. That way, you could get a combination of:
- Low rates
- Professional portfolio management
- Potential for high returns from individual stocks
The road to £250,000
How long would it take me to raise £250,000 using this approach? Well, it would depend on how much I put into my account and the returns I could achieve.
But let's say I put £10,000 into my ISA each year and manage to achieve a 9% annual return over the long term.
In this scenario, it would reach £250,000 in about 14 years.
