Is 2023 a once-in-a-lifetime chance to build a £1m Stocks and Shares ISA?
With the Stocks and Shares ISA deadline fast approaching, many British investors are running out of time to maximise their annual £20,000 allowance. And given last year’s stock market volatility has created rare buying opportunities, that’s not something to waste.
With the FTSE 100 making an impressive recovery, the window to capitalise on upward momentum may seem over. However, not every stock has been so fortunate, especially those within the FTSE 250. But even if that weren’t the case, the initial recovery is only the first step in what could be a brand new and (hopefully) very lengthy bull market.
Therefore, buying top-notch UK shares at today’s prices could lead to an impressive £1m portfolio in the long run.
Building a seven-figure ISA
The 2022 stock market correction was hardly pleasant, but it wasn’t anything new. Corrections and crashes come with the territory of investing and represent the cycles in which economies ultimately operate.
But when looking throughout history, these down periods have always been temporary. And the stock market has a 100% track record of recovering before reaching new heights. As such, today’s still-depressed valuations may very well be a lucrative opportunity waiting to be unlocked.
Under normal circumstances, the FTSE 250 has historically generated an average total gain of 10.2% annually. At this rate of return, an investor capable of consistently maximising their Stocks and Shares ISA can potentially reach millionaire territory within 18 years. And that’s with just a low-cost index fund.
Buying individual high-quality UK shares at dirt-cheap prices can significantly amplify stock market returns. Even if it’s just an extra 2%, that’s enough to be the difference between a £1m and a £1.3m portfolio over the same period.
Balancing risk and expectations
The thought of becoming a millionaire in the next two decades sounds lovely, especially since there’s no way of knowing when another rare buying opportunity like this will emerge again in the future. And for investors getting closer to retirement, this could be a final once-in-a-lifetime chance to build a £1m pension pot.
However, there are some caveats to consider. Buying and holding shares for the long run can never guarantee positive returns. Even world-class enterprises eventually start to wind down, or become disrupted by an unpredictable factor. Just look at what happened to the largest travel businesses right before the pandemic came along.
Moreover, while the stock market has a perfect track record of recovery, the time required to do so has been quite erratic. Not to mention there are plenty of examples where a market begins to rebound only to drop off a cliff once again. And for those picking individual stocks, the potential rewards might be higher, but so are the risks. And it’s entirely possible to inadvertently destroy wealth rather than create it.
Becoming a successful investor is about taking sensible risks and being prepared for unforeseen failures in investment theses. And building a diversified Stocks and Shares ISA is one of many methods British investors can use to protect their portfolios.
The post Is 2023 a once-in-a-lifetime chance to build a £1m Stocks and Shares ISA? appeared first on The Motley Fool UK.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023