Image source: Getty Images
Different people have their own lifetime best financial move. It might be starting a business, or spotting an unattributed Old Master in a provincial antique shop or auction house. What about the simple move of starting a Stocks and Shares ISA?
Perhaps, surprisingly, I think that could yet turn out to be the best financial move of a lifetime. Let me explain why.
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.
The power of long-term investment
Imagine I invested my annual Stocks and Shares ISA allowance of £20,000 each year for three decades.
That move alone would mean me putting aside £600,000. That is a significant amount!
By tucking it away in an ISA and investing it, I would be putting the money to work rather than frittering it away on daily treats from pricy drinks to posh meals.
But imagine something else. By investing it well, I could compound the value of my investment at 10% annually. Doing that, from a standing start today, my Stocks and Shares ISA could be worth over £3.6 million in 30 years!
That sounds like it could well be the financial move of a lifetime.
Four things to do
To get there, there are four things I would need to do. The first one is something I could do today – set up a Stocks and Shares ISA. There are lots of options available, so I would choose the one that best suited my own needs.
My second move would be coming up with the £20,000 annually to invest. Even if I could not manage that much, I would start with what I could, and try to build on that. I would still use the same investing approach, but if I invested less, my returns would be proportionately lower.
Thirdly, I would need to find shares to buy. I would keep my Stocks and Shares ISA diversified across a range of different shares. Finally, I would monitor my ISA over time to consider whether the investment case for any of my holdings had changed.
Finding shares to buy
In my example above, I discussed a 10% compound annual growth rate as an example. My Stocks and Shares ISA might do even better if I found shares like Alphabet (up 148% in five years) or London-listed Kainos (up 74% in five years).
Even a 10% annual return though, is harder to achieve over the long term than it may sound.
One share I hope might help me achieve that sort of return is M&G (LSE: MNG). It has the sorts of advantages I look for as a long-term investor, namely a large, enduring market, a strong brand, and a big existing customer base.
The company has grown its dividend annually in recent years and currently the dividend yield stands at 9.9%.
Since its 2019 listing though, the M&G share price has fallen 12%. So it has not delivered a 10% compound annual growth rate lately. I see ongoing risks, such as tight household budgets leading the asset manager’s customers to withdraw some funds, hurting profits.
But over time, I remain upbeat about the outlook for M&G. If I can buy the right companies for my Stocks and Shares ISA, I think it could end up being a boon for my personal finances.
