How I’m using my Stocks and Shares ISA allowance to aim to become a millionaire by 50

Young mixed-race couple sat on the beach looking out over the sea

I have calculated that if I invest the maximum amount in my Stocks and Shares ISA for the next 20 years and achieve an average annual growth rate of 6%, I’ll reach ISA millionaire status comfortably. It’s an ambitious financial target for me, but a realistic one, nevertheless.

Becoming a millionaire is quite the accomplishment, and investing through an ISA can help me achieve this in less time by not having to pay income or capital gains.

To put myself in the position to be one in my early 50s, sticking to three investing basics will be crucial: investing early, maintaining or increasing my contributions, and staying invested during tough times.

An ambitious financial target like this requires a high risk appetite. For example, investing approximately £20,000  each year (£1,666.66 monthly)  with 6% annual growth would take me to just over £1 million in 25 years, whereas a 2% growth rate would get me there in 40 years.

Being in my early thirties, I figure having 100% equity exposure while I am still young gives me the greatest potential to maximise returns. Since I am investing for such a long time horizon, I can afford to take a high-risk approach.

My investment journey thus far

I am in my sixth year of investing and was fortunate enough to max out my ISA over the previous five years, which has resulted in a low six-figure ISA value for me currently. It is a high-risk portfolio that has returned 6.37% on an annualised basis, above the 6% growth target I require to reach my milestone.

The market over the last five years has been volatile, and I could have easily jumped ship when events like Brexit and the pandemic impacted the market. But I didn’t. And through remaining invested, I gain two benefits in relation to my financial objectives that I simply wouldn’t otherwise.

Dividend reinvestment is the first. The investment platform I use automatically reinvests any dividends paid from the shares I’ve bought, and this boosts my investment returns significantly — especially over time with compound interest.

Cheap diversification is the second — it is often the key to investment success. Aside from individual company shares, I have diversified exposure to different regions, sectors and assets through holding a range of investment trusts and funds that spread my risk.

I can’t predict how the market will behave over the next two decades, but committing to ride the highs and lows tends to provide a better result. The aim is to invest close to the maximum contribution every year while sticking to my aforementioned basic investment principles.

Of course, this will be as much as circumstances allow. Even if I fall short of the ISA limit every now and then, I should still be on track for my financial goal as a result of compound growth.

Ultimately my investment principles — combined with a bit of luck, timing and the right investment growth — should put me on the road to becoming an ISA millionaire by the time I’m in my early fifties.

Time will tell. 20 whole years of it.

The post How I’m using my Stocks and Shares ISA allowance to aim to become a millionaire by 50 appeared first on The Motley Fool UK.

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