One of the main reasons I invest in the stock market is to try and increase my wealth over the long term. I find a Stocks and Shares ISA can be a convenient vehicle for doing that.
By putting money in today and letting it work for me in coming years and decades, I hope it may help me achieve strong returns.
As an example, if I wanted to put £20,000 into an ISA now and try to build wealth, here is how I would go about it.
Balance risk and reward
No matter how good most of my investment choices may be, if I make a few really bad ones, I could still end up losing money.
So the mindset I would take to investing my ISA is about focussing not only on potential reward, but also how to match risks to my personal tolerance. For example, if AFC Energy can successfully commercialise its fuel cell technology, I think its shares could do very well. But I see significant risks that the company will burn through cash, or struggle to grow profitably.
By contrast, established energy companies like SSE and National Grid are already profitable. While I see less potential upside for them if they live up to their full potential compared to the case at AFC, I also think the risks are much lower (though there are still some risks, as with any company).
Choose great companies then go fishing
I would want to keep my Stocks and Shares ISA diversified as a way to reduce my risk if some of my choices end up disappointing me. £20,000 is ideal for this, as it comfortably allows me to diversify across five to 10 companies, for example.
But once I have bought what I see as great companies at attractive prices for my ISA, I would take a more hands-off approach. However, I would still check in from time to time, to see whether developments had significantly altered the investment case I saw for any of the shares.
But beyond that, I would simply take a long-term investing mindset. By making smart choices then letting time take effect, hopefully my investment choices would help me build wealth over time. That means I can tuck the money away through my ISA then spend time relaxing and enjoying myself rather than fretting over every movement in share prices.
How exactly would I try to build wealth using this approach? There are a couple of tacks I could take here.
One would be to invest in growth shares and hope that at least some of them produced the sort of phenomenal returns seen at companies like Amazon and Tesla in the past.
A different approach would be to invest in income shares, then compound the dividends. If I put £20,000 in a Stocks and Shares ISA today and it compounded at 10% annually, after 25 years I ought to be sitting on an ISA worth over £200,000!
The post How I’d invest £20,000 in a Stocks and Shares ISA today to help build long-term wealth appeared first on The Motley Fool UK.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon.com and Tesla. 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