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For British investors, a Stocks and Shares ISA is one of the most powerful tools for building wealth. While only £20,000 can be added each tax year, any capital gains and dividends received are protected from the fingers of the taxman.
So if an investor manages to 10x their portfolio, they get to keep all of these juicy gains. But the question now becomes, how can an investor transform a £1,000 investment into £10,000?
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.
Exploring options
There are different ways to strive for a 10x return. Exploring penny stocks can be a good place to start. These enterprises have a habit of delivering explosive gains (although many also fail).
One example would be Tilray Brands in 2018. With hype surrounding the upcoming legalisation of cannabis, the cannabis-themed consumer packaged goods enterprise was a seemingly exciting opportunity for investors to gain exposure to this market. And within a few short months of its IPO, the share price skyrocketed by 1,000%. So anyone who put £1,000 to work in July 2018 quickly had close to £10,000 by mid-September.
The problem is that hype-driven returns are rarely sustainable. Anyone who held on to their shares has seen all of these impressive gains wiped out. And those who bought at the peak are now sitting on a 99% loss – ouch!
Needless to say, penny stocks are hazardous. And while everyone loves the idea of getting rich quick, that often requires taking on lottery-like levels of risk.
Investing for the long run
Instead of focusing on penny stocks, exploring small-caps might be a more successful approach. There’s no denying these businesses still carry high levels of risk. But with established revenue streams and cash flow, they’re far more financially robust than most penny stock enterprises. And that makes the investing process significantly less speculative.
Not all small-caps are destined for greatness. But over the last decade, there have been multiple sustainable 10x success stories emerging from this space. Alpha Group International (LSE:ALPH) is a perfect example of this.
The foreign exchange risk management and alternative banking fintech joined the London Stock Exchange in 2017 at a market-cap of around £64m. It’s since carved out a niche that corporate bankers were overlooking. Revenue, earnings, and cash flows have surged at a double-digit rate despite economic slowdowns.
The journey hasn’t been smooth, with the share price getting chopped in half during the 2020 pandemic. And yet even with this turbulence, shareholders have reaped a total just shy of 1,100% as Alpha grew from an AIM-listed small-cap into a FTSE 250 mid-cap. And it’s how it became one of my largest holdings in my Stocks and Shares ISA.
Alpha’s growth story might not be over. While the company’s currently being courted for a potential takeover, management may decide to remain independent. Why? Because despite all the progress, it’s barely made a dent in its total addressable market that’s still dominated by archaic systems and legacy banks.
The company has begun stepping outside its niche, which means more competitive pressures. So assuming it isn’t acquired, the journey to deliver another 10x return may take considerably longer than eight years. Nevertheless, for patient investors seeking substantial long-term gains in a Stocks and Shares ISA, Alpha may be worth considering if it doesn’t get snapped up in the coming weeks.
