Investing for the long term is a sound strategy in my opinion. As we’ve seen already this year, stock markets can make sharp moves in a very short space of time. Trying to buy and sell around these events and make a profit is basically impossible. Staying invested can allow people like me the ability to ride out short-term moves, aiming to make a million.
A Stocks and Shares ISA will aid me in this pursuit by allowing me to take profits without paying tax. The ISA is a shelter from capital gains tax, so I’ll be able to keep all of the dividends and the profit I make when I sell a stock. With the desire to invest to make a million, every penny helps. In some cases, it’s far more than pennies being saved here, an ISA can save me thousands of pounds!
I mentioned at the beginning that investing in volatile markets is hard if I’m trying to time the market. Did I know the FTSE 100 was going to trade below 5,000 points when we started 2020? Definitely not. Although I like to think of myself as being an astute investor, I can’t predict the future. So the first point in my strategy to make a million is to invest regularly. £1,000 a month being drip-fed into the market allows me to avoid missing out on times when the FTSE 100 is low. At the same time, it also puts less pressure on me to time the market, given that I’ll be investing again next month.
Another benefit of regular investing within an ISA is I get to benefit from compound investing. This is when funds are allowed to accumulate over time. This can happen in several ways. For example, I can use my dividends to buy more shares that earn dividends. Or imagine I buy a stock for £1,000 and sell it when the value is £1,100. I then take this and invest in another stock. If the share price of the second one goes up, I’m making a profit on the full £1,100, even though originally I only put in £1,000 of my own money. This is because the accumulated profit compounds, allowing me to get closer to my goal of making a million.
Is it actually possible?
If I invested £1,000 a month and assumed an 8% annual return on the funds, I’d reach the million mark after 25 years. In the grand scheme of things, this isn’t that long at all. Depending on the age an investor starts this strategy, it could mean early retirement at 50 or 60 years of age.
One of the best elements, I feel, of this investing strategy to make a million is that it doesn’t have to just stop at a million. I can always dip in and take some funds out of the ISA, and leave the rest invested. The further down the line that is, the more taking out a few thousand won’t make a difference. Then I can continue to leave the funds to compound from dividends and accumulated profits, taking the balance to over a million.
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jonathansmith1 has no position in any of the shares mentioned. 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.