Could you become a millionaire from a Stocks and Shares ISA?

According to the Financial Times, there are now 7,730 people who have £1m in either a cash ISA or a Stocks and Shares version.

Let’s consider how a novice investor could go about joining their ranks by investing only in the stock market.

Don’t hang about

The most important piece of advice I would offer is to get on with it. It stands to reason that the longer you invest, the bigger your portfolio could grow.

Indeed, someone who utilises the full ISA allowance of £20,000 each year, could reach £1m after just 20 years, if they achieved an annual growth rate of 8%. Significantly, all capital gains and income earned in an ISA can be enjoyed tax-free.

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.

Little and often

However, for most people, having access to a large lump sum each year is unrealistic. Instead, a smaller regular monthly investment is more achievable.

Here’s how long it would take to reach seven figures depending on the amount invested each month, again assuming an 8% return each year:

• £100: 54 years 3 months
• £200: 45 years 6 months
• £300: 40 years 5 months
• £400: 36 years 10 months
• £500: 34 years 2 months

Although an investment horizon of at least 34 years is a long time, figures like these suggest a £1m+ Stocks and Shares ISA could be achievable with a bit of patience and a successful stock-picking strategy.

But is 8% realistic?

Lots to choose from

Well, a quick look at the FTSE 100 shows there are 47 stocks that have seen their share prices increase by at least 46.9% over the past five years (equivalent to 8% a year). This ignores dividends. When payouts are taken into account, the Footsie’s returned 12%+  per annum over this period.

One of the most impressive performers has been Computacenter (LSE:CCC), which I recently added to my own portfolio. In fact, its share price has risen 91% since October 2021. In addition, the stock has a 28-year track record of paying a dividend. It’s currently (1 November) yielding a modest 1.5%.

What’s going on?

Although its name makes it sound old-fashioned, the group’s gained indirectly from the AI revolution. It’s one of just a few companies large enough to supply the technology infrastructure needed by the hyperscalers.

However, during the 10 days prior to the release of its third-quarter trading update on 26 October, its share price took a bit of a battering with doubts emerging as to whether the AI boom will continue.

Concern has also been expressed about the group’s falling gross profit margin. The company says “our targeted growth with high-volume customers is driving significant gross profit momentum while reducing our gross margin percentage.” Over the long term, a price-cutting strategy could be risky.

It gets better…

But these fears were quickly dispelled when the group said its order backlog had increased by $3.6bn to $12.6bn during the period.

The business is doing so well that it’s upgraded its full-year adjusted pre-tax earnings forecast for the second time in two months. It’s now expecting “no less than” £425m. Previously, the City consensus was £340.9m.

Overall, I think it’s an exciting stock to consider. But as much as I like Computacenter, it’s not the only growth opportunity that’s caught my attention recently…

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James Beard owns shares in Computacenter plc.