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With its annual contribution limit of £20,000, it can be easy to think that a stocks and shares ISA is an investment tool for fairly well-off people.
However, that is not necessarily the case. Imagine you had £2,000, or decided to save it over the next year, saving just over £38 each week on average. I think I could do with a stocks and Shares ISA to try to double my money over the next few years.
Why do I use an ISA?
I have an ISA myself. But if I had £2,000 left over, I could also invest it directly in the stock market. Why bother with the ISA?
There are tax advantages. But I think a practical reason for using an ISA would be that, having put in the effort to choose one that felt right, I might feel motivated to continue with my investment plan.
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.
How to try to double my money
The way to double my money in the stock market seems easy at first.
One is capital gains. In other words, if the shares I buy double in price, my £2,000 stocks and shares ISA will be worth £4,000.
Another is dividends.
Vodafone It has a dividend yield of 10%. I diversify my ISA across a variety of stocks, but if I could achieve an average 10% dividend yield each year, I would double my money in a decade. In fact, you could do it even sooner by reinvesting the dividends along the way.
Or I could double my money through a combination of capital gains and dividends.
Finding the right stocks
So far, everything is simple… in theory.
However, in practice, how can I find stocks whose price can skyrocket, pay big dividends, or both?
It may seem counterintuitive, but instead of focusing on big potential rewards, I would pay more attention to reducing my risks.
Specifically, my goal would be to build a portfolio of blue-chip stocks in companies that I believe have excellent long-term prospects. With £2,000 to invest, you would only be looking for a handful of shares to buy.
Fundamentally, I would try to buy them only when the price seems really good to me compared to how I see the business prospects.
Take the long-term approach
I also need to be realistic about deadlines.
After a decade, I really think I could double my money in a stocks and shares ISA. It is not guaranteed and you could lose money as well as win it. But I think I have a chance.
However, I highly doubt I can do it quickly, say in a year. Even if he did, he would consider such a feat a stroke of luck. On the other hand, the smarter the investment decisions I make, the more likely I am to create my own luck to some extent.
That’s why I take a long-term investment approach. Hopefully that can help me turn even a fairly modest stocks and shares ISA into something bigger!
