Here’s how I’m aiming for a million in my Stocks and Shares ISA
The number of people with £1,000,000 in a Stocks and Shares ISA has been rising steadily over the years. So how do I look to join the ranks of the millionaires?
The answer is simple. The most important things investors can do to have a shot at a million are invest regularly and give themselves time.
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Contribution limits
The chance to invest up to £20,000 a year without having to pay taxes on dividends or capital gains is a terrific opportunity. And it becomes more and more valuable as tax rates rise and thresholds fall.
Even for someone who contributes the full amount â which I try to do each year â it takes time to get close to £1,000,000. Over the last 10 years, the average annual return has been just under 10%.
At that rate, it takes around 18 years to get to a million and thatâs for someone who invests the full £20,000 a year. But itâs impossible to take the last step on a journey without taking the first one.
With my ISA, Iâm focused on investing as much as I can as often as I can. And whatever return I get from the stock market, Iâm convinced itâll be better than keeping money in cash over the long term.
Getting ahead
Obviously, anyone who can earn a bigger annual return will get there faster. But while thereâs nothing wrong with aiming for outperformance, investors need to be careful.
It can be easy to get drawn into what look like huge opportunities to make a 200% â or more â return within a couple of months. The trouble is, though, this can be very risky.
The chance of losing money in the stock market is high enough without making it worse by chasing huge returns. And the cost of making a mistake compounds over time.
For the vast majority of people â me included â the best thing to do is to look for investments that can earn good long-term returns. Fortunately, I think there are a lot of opportunities in todayâs market.
A stock Iâm buying
One stock Iâve been buying is Brown & Brown (NYSE:BRO). The company is a US-based insurance broker that focuses on specialised commercial lines for mid-sized firms.
The stock has been falling recently because investors are worried about artificial intelligence. AI has been making progress in offering personal insurance, so how long until it cracks commercial lines?
Itâs a good question and Iâm not sure what the answer is. But while this is a risk, Brown & Brownâs scale does give it a big advantage thatâs difficult for a competitor to emulate.
Having a huge book of business helps the firm negotiate better rates from carriers and therefore offer better deals to customers. And thatâs going to be extremely difficult for a new competitor to disrupt.
Getting rich⦠slowly
Shares in Brown & Brown currently trade at a forward price-to-earnings (P/E) ratio of 14. I think thatâs cheap for a firm thatâs been growing revenues at 11% a year over the last decade.
Importantly, though, Iâm not looking for the stock to explode in the next few months. Iâve been buying because I think the cash the company is set to generate can offer me a good long-term return.
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Stephen Wright has positions in Brown & Brown. The Motley Fool UK has no position in any of the shares mentioned. 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.
