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The number of people with £1,000,000 or more in a Stocks and Shares ISA has been growing over the last few years. And joining the ranks of the ISA millionaires sounds very enticing.
There are no guarantees when it comes to investing and exactly how much you need to invest to have a shot at a million depends on a few things. But it might be less than you think.
FTSE 100 returns
The average return from the FTSE 100 over the last 20 years has been just over 6.5%. At that rate, if you invest £150,000 today, you could get to £1,000,000 after 30 years.
That’s a lot of money to find up front, but this isn’t the only way to aim for a million. Investing £1,000 a month for 30 years results in a portfolio that ends up in more or less the same place.
Over time, this involves investing a total of £360,000, which is far more than the £150,000 you could aim to turn into a million by investing on day one using the same rate of return.
There’s a clear moral to this story. Other things being equal, it’s better to invest earlier rather than later – but investing regularly over a long time can still generate significant wealth.
The stock market
The above calculations are based on the average return from the FTSE 100 over the last 20 years. But there’s no guarantee that the index as a whole will do the same thing going forward.
One of the nice things about the stock market is that there’s a huge range of opportunities available. And share prices don’t all behave the same way at any given point in time.
Even when the market as a whole is moving higher, there are always some stocks that don’t participate. Equally though, some are more resilient than others when things get choppy.
Over the long term, I think the best strategy is to try and build a diversified portfolio of shares in high-quality companies. And the UK has quite a few that are worth considering.
Quality growth stocks
I think Halma (LSE:HLMA) is one of the highest-quality growth stocks on the market. The share price is up 40% in five years, but investors should focus on the underlying business.
Since November 2020, revenues have climbed 68% and free cash flows are up 99%. And I think the firm’s acquisition strategy gives it a good chance to keep growing into the future.
The reason the share price hasn’t matched the performance in the underlying business is that it was trading at some high multiples five years ago. But these have moderated to some extent.
In terms of valuation, Halma does still trade at higher multiples than some other FTSE 100 names. Compared to where it’s been though, it’s not unusually high.
Risks and rewards
No stock on the market is 100% risk-free. With Halma, there’s always a chance that it encounters difficulties with integrating its acquisitions, which can weigh on returns.
Over the long term though, I think the best way to aim for a million is by focusing on quality companies with strong growth prospects. And that means considering the likes of Halma.
