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How I’d aim to build a million-pound portfolio in a Stocks and Shares ISA

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Image source: Getty Images

The first thing I’d say is that it really is possible to build a £1m Stocks and Shares ISA portfolio, because thousands of Britons have done just that. The next thing I’d say is that it isn’t easy. Anybody who wants to build this mighty sum would have to work at it.

Most important of all, it takes time. Anybody who thinks it can be done with some huge investment coup such as buying an early stage Amazon or Tesla then selling at the right time is deluded. The odds of doing that are slim. Luckily, there’s a better way to build a tax-free million inside a Stocks and Shares ISA.

Stocks and Shares ISA millionaires take their time

Forget trying to get rich quick, long-term investors know that the key is to take it slow. Those annual ISA contributions need plenty of time to compound and grow.

Currently, we can all invest a maximum of £20,000 a year inside a Stocks and Shares ISA. Maxing out the allowance every year is essential for those taking a shot at a million. Somebody who does that every year would become an ISA millionaire after 22 years, assuming their money grew at 7% a year. That’s roughly the long-term annual return from investing in FTSE 100 shares, with dividends reinvested.

Instead of an impossibility, becoming a millionaire starts to look like a mathematical certainty. But nothing is certain when it comes to investing. There is no guarantee that the FTSE 100 or any other index will deliver 7% a year (although history suggests they usually do).

The other big issue is that would-be millionaires may not have £20k a year and a 23-year timeframe at their disposable. That doesn’t mean they can’t do it, though. It is possible to beat the FTSE 100, by investing in individual companies listed on the index.

That’s how Motley Fool investors do it. Rather than buying trackers, we believe in scouring the index for exciting company stocks that we think can outperform. These don’t have to be whizzy growth stocks, either.

I would start my quest to make a million by investing in FTSE 100 stocks offering high yields. For example, housebuilder Barratt Developments currently offers dividend income of 8.52% a year. That yield should roll up nicely over the years, with any share price growth on top.

Insurer Aviva yields 8.37% and fund manager M&G yields 9.51%. When their shares start to grow, too, the total return should multiply.

These are just three names picked out at random. If I was aiming to build a £1m fortune, I would want to build a diversified spread of about 15 different income, growth, and value stocks. One or two are bound to disappoint, but hopefully the winners will more than offset the losers.

There is no guarantee that I would make a million, but one thing is pretty certain. I’d be a lot richer for trying.

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 post How I’d aim to build a million-pound portfolio in a Stocks and Shares ISA appeared first on The Motley Fool UK.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. 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