If someone had explained the stock market to me back when I was 18, and told me that its entirely possible for a careful investor to accumulate a million over the course of their lifetime well, I might have a million by now.
Learning about investing in quality companies came relatively late to me and I havent quite reached those heady heights, but I am approaching retirement in a significantly better state than I otherwise would.
I use both a Self Invested Personal Pension (SIPP) and an Individual Savings Account (ISA), and Im focusing on the ISA today because it gives me a very useful tax advantage.
Avoid cash
First, Ill start by telling you Id avoid a cash ISA, as their pitifully low typical interest rates dont even match inflation and whats the point of saving tax on an investment thats guaranteed to lose money in real terms? Its a stocks and shares ISA for me every time.
Our new 2019 ISA allowance is just two weeks away now, and we can stash away up to 20,000 over the next 12 months and not pay a penny in tax on any profits when we withdraw cash even if thats in 40 years time and weve accumulated a million or more.
How realistic is the expectation of making a million? I wont bore you with lots of statistics, but Ill tell you about a couple of examples Ive run through my spreadsheet
Multi-millions
Suppose youre starting out with your 2019 ISA allowance and can invest the full 20,000 (I know most of us cant, but this is just to explore the possibilities). If you can get an average annual return of 6% per year from the stock market (which I think is a reasonable target), after 40 years youll have smashed the million pound barrier and be sitting on a 3.2 million pot.
Youll have invested a total of 800,000, so thats 2.4m profit and no tax to pay on it.
If youre among those of us who cant afford to use up our full ISA allowance, how much will you need to stash away? My calculations suggest youd need to invest approximately 525 per month for the same 40 years to reach a million. And while thats still a significant monthly amount, it should be well within the reach of a fair proportion of the population certainly a lot of people in professional occupations.
Big boost
But even if you can only manage, say, 200 per month, after a lifetimes career you could still end up with a pot of around 380,000 to set you up for a comfortable retirement.
Trying to time the market is, I think, a mugs game, but that doesnt mean you cant take advantage of attractive investment times when they happen to come along.
And with dividends from top-quality FTSE 100 companies set to reach record levels this year, my feeling is that 2019 really could be a great year to get started on a lifetime of profitable investment.
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