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Lots of people use a Stocks and Shares ISA to try and build wealth over time. So how much wealth can someone build? Put it this way, HMRC said last year that there are over 5,000 ISA millionaires.
But trying to aim for a million from a Stocks and Shares ISA is a tall order. Here are three key elements I think could help someone with that goal.
1. Getting serious about how much you invest
How easy it is to aim for a million depends, in part, on what you are working with. With a £500k Stocks and Shares ISA, hitting that million pound mark requires 100% growth. With a £50k ISA the challenge is much bigger.
So putting more money into the ISA can help. That does not necessarily mean putting large sums in quickly, though. Taking a long-term approach, even modest sums can add up.
For example, say someone invests £10 a day and compounds it at 5% annually, they will have a seven figure Stocks and Shares ISA after 55 years. Yes, that is a long wait. But starting from nothing and hitting a million pound valuation on £10 a day is impressive, in my view.
All other things being equal, bigger contributions would make for faster progress.
2. Keeping a keen eye on costs
When thinking about a £1m target, the odd couple of hundred pounds here or there may seem like a rounding error in the grand scheme of things. In fact though, what may look like small charges can add up – especially when they are levied year in, year out.
So it is important for an investor to manage their costs closely. A useful first step is taking care when picking a Stocks and Shares ISA.
3. Finding brilliant shares for the long term
Of course, another key element as someone aims to grow their ISA value – even by the modest-sounding 5% I used in my example above – is to find a range of shares that perform strongly over the long term.
In reality, some will do worse than others, so even a 5% compound annual growth rate typically requires some shares that do better than that, as some will likely do worse.
One share I think is worth considering for its long-term potential right now is discount retailer B&M European Value Retail (LSE: BME). The once-popular share fell a long way as investors fretted about risks including rivals’ consumer goods offering being more attractive to B&M’s cost-conscious shoppers. That is still a risk that concerns me.
However, the share has already bounced back 55% so far this year – and I think the valuation still looks attractive given B&M’s long-term prospects.
B&M has a large estate of stores and well-established brand. It has proven its business model can generate cash and offers a 3.7% dividend yield.
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Christopher Ruane owns shares in B&M European Value Retail.
This story originally appeared on Motley Fool
