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Is it realistic to dream of becoming a Stocks and Shares ISA millionaire? I think I could realistically aim for a million by investing in my ISA.
Several thousand people have already done just that. If I wanted to join them, I would come up with a practical action plan like the one below – and start putting it to use.
Save as much as possible
With a maximum yearly contribution of £20,000, my quest to aim for a million would go faster if I made the most of my allowance.
However, if I simply did not have that sort of money available, I could still go for the same goal, but accept it would take longer to reach.
Over the long term, fees and costs can really eat into the returns from an ISA. I would therefore spend time upfront carefully comparing and deciding the best Stocks and Shares ISA for my personal circumstances.
Reduce risk as well as focusing on reward
Clearly this is a long-term effort. And although I would aim to reduce my risk through diversifying across a range of shares, over the course of decades I would probably (almost certainly!) still end up choosing some that ended up performing poorly.
I would try to reduce the likelihood of that by filtering out shares I felt looked too risky for my tolerance, no matter how attractive their potential might seem.
As famous investor Warren Buffett says, the first rule of investing is never to lose money… and the second rule is never to forget the first one!
Of course almost all investors, including Buffett, lose money sometimes. I think the point is to try to reduce the risk of that happening. For example, I would avoid companies with obvious red flags, or whose businesses I cannot confidently assess.
Put the bubbly on ice
Imagine I aim for a million by contributing £20,000 to my ISA annually and investing it. How long it takes to reach my target will depend on the average compound annual growth rate I achieve.
At 7%, it would take 22 years. At 10%, that would fall to 18 years. If I can achieve a compound annual growth rate of 15% starting now, I should be a millionaire 15 years from today.
Growth and income
But not many blue-chip shares offer a 15% dividend yield. Some FTSE 100 member currently yield 10%, or close to it, though, including 9.8%-yielding Vodafone.
But compound annual growth does not have to come only from compounding dividends. It could also come from growth.
By selecting a range of blue-chip shares I think offer me the right combination of growth and income prospects, I think it is realistic to aim for a million from my ISA.
I would need a long-term approach, willingness to contribute money along the way – and to choose the right shares.