I own a whole Bitcoin. I was hoping it would make me a millionaire (some people on the internet still claim it will) but I know it won’t. That dream has died. Bitcoin is now too risky to invest in, given that it trades at $10,000 a coin. That’s too high an entry price. The big money has been made. You’ve left it too late.
Buy-to-let is another ship that has now sailed. It was an all-conquering investment for 20 years, until former chancellor George Osborne’s tax crackdown. Now I believe it’s more trouble than it’s worth, as the regulatory burden climbs along with the Treasury’s tax take, while house price growth flattens out. No wonder landlords are fleeing the sector in droves.
Which brings us back to an old favourite – the Stocks and Shares ISA. If you want to make a million to fund a comfortable retirement, this remains one of the best ways to do it. It’s bettered only by a company pension, where you will get both employer contributions and tax relief.
Tax free dream
Stocks and Shares ISAs are highly flexible. You can invest as much or as little as you like, either in one-off lump sums when you have money to spare, or as regular monthly investments. Your portfolio grows free of all income tax and capital gains tax, so you can take your returns without handing anything to HMRC.
But is it really possible to become an ISA millionaire? Obviously it is, because hundreds have managed it since launch in April 1999. You can get there faster today, as the annual ISA allowance has been hiked to £20,000, allowing people to stow away more than ever.
Average growth rates
A millionaire ISA is nevertheless a tall order – so what do you need to do? Let’s assume you invest entirely in stocks and shares and they grow at an average 8.8% a year before charges, which is the annual compound growth rate on the FTSE 100 in the decade to 31 December 2018, with dividends reinvested for growth, according to IG.
If you can limit your annual platform and dealing fees to 0.8% a year, you keep 8% of that. If you can save the maximum £20,000, after 10 years you should have £356,000. After 15 years, you will have nearly £650,000. If you keep going at that rate for 20 years, then you will break a million.
Small is also beautiful
Naturally, most people can’t afford to tuck away anywhere near that much, myself included. Let’s say you can “only” afford £5,000 a year instead. That’s still a lot, I know, but we’re tilting at a £1m jackpot here, so you have to make an effort.
At that rate, you will hit £1m in 35 years. Yes, that’s a long time, but remember, you’re saving for retirement here. Those who get their act together early could be saving for periods measured in decades.
Most of us won’t become ISA millionaires, but that doesn’t mean we shouldn’t try. Even if you fall short, you should still have a pretty handsome nest egg. It’s a lot less stressful than Bitcoin, and much less bother than buy-to-let. Fancy giving it a go? Here are two stocks you could start with.