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ISAs can be amazing wealth-building tools. With these tax-efficient accounts, it’s possible to build up a substantial amount of money over time, even starting with a relatively low amount of capital.
Looking to grow an ISA substantially in the years ahead? Here’s how I’d aim to turn a small account into £300k, starting in 2024.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The first step
Let’s say I was starting out with £10k in an ISA today. The first thing I’d do is make sure I have the best type of ISA for my goals.
If I was looking to build up my savings to £300k, I’d want the money in a Stocks and Shares ISA instead of a Cash ISA.
With the former, I’d have access to investments that could help me grow my wealth much faster than cash savings, such as stocks, funds, investment trusts, and exchange-traded funds (ETFs). These kinds of investments could help me obtain returns of around 7-10% a year over the long run.
It’s worth noting that money in a Cash ISA can easily be transferred to a Stocks and Shares ISA.
Regular savings
Once I had the right type of account open, I’d look to put a regular savings plan in place. With a Stocks and Shares ISA, an investor can currently contribute up to £20k a year. That’s a very generous allowance.
I’d aim to put as much of my allowance in as possible every year. That said, I wouldn’t be concerned if I couldn’t max out the allowance. Even if I was to only put in £5k or £10k every year, my ISA balance would still grow rapidly.
Investing for growth
Finally, I’d look to get my money working for me by investing it.
Now, there are many different ways of investing within a Stocks and Shares ISA. Personally, I’d employ a simple, three-pronged strategy.
First, I’d put money into global index tracker funds. These would provide me with access to a wide range of stocks for a low price – a great foundation for my portfolio.
Second, I’d allocate some money to actively-managed investment funds in the hope of boosting my returns. Here, I’d take a thematic approach and back big, powerful themes such as artificial intelligence (AI) and automation/robotics.
Finally, I’d put some money into individual stocks that have the potential to beat the market over time in an effort to further turbo charge my returns.
Individual stocks are riskier than funds. However, they can deliver much bigger returns over time.
Alphabet (the owner of Google and YouTube) is the kind of stock I’d go for.
With exposure to AI, cloud computing, digital advertising, and self-driving cars, I think it has the potential to deliver market-beating returns in the years ahead.
The path to £300k
How long would it take me to turn £10k into £300k with this approach?
Well, it would depend on how much I was contributing to my account and the returns I was able to achieve.
But let’s say I put £12k into my ISA every year and was able to achieve a return of 9% a year over the long run.
In this scenario, I’d get to the £300k mark in around 12 years.
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