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Becoming a Stocks and Shares ISA millionaire is an ambitious goal. But it’s a dream that an estimated 5,000 Britons have already achieved. And apart from having a seven-figure portfolio, the ISA wrapper protects all of these gains from taxes, allowing dedicated investors to enjoy a luxurious lifestyle without HMRC knocking on the door.
Some 5,000 people out of the estimated 14 million who actively invest in the stock market is obviously a tiny minority. This goes to show that reaching ISA millionaire status isn’t an easy feat. However, a lot of these challenges can be eliminated for those willing to be patient. And even investors with just £500 to spare each month can reap potentially enormous rewards.
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.
Crunching the numbers
Over the last five years, the UK stock market, as measured by the FTSE 100, has delivered an average annualised gain of around 12.5%. However, historically, the long-term average has been closer to 8%. So at this rate, how long will it take to become an ISA millionaire?
Putting £500 to work each month at an 8% return will surpass the £1m threshold in just under 34 years. Obviously, that’s a long time to wait. But for those who start early, it’s a nice way to secure a more comfortable retirement. Even more so, considering index funds require little knowledge about investment research, portfolio rebalancing, or risk management. After all, these investment vehicles put all of these tasks on autopilot.
But what if investors want to be greedy or simply don’t have 34 years available? That’s where stock picking enters the picture.
Aiming for market-beating returns
Index funds eliminate a lot of effort and hassle. But investors willing to do the work can potentially earn considerably greater returns by hand-picking top-notch stocks. That’s certainly been the case for those who discovered Games Workshop (LSE:GAW) 10 years ago.
The plastic miniature hobby business may not sound like a high-growth enterprise. But by developing a strong IP and addictive tabletop gaming experience, the company’s nurtured a cult-like following from many of its customers. That’s translated into phenomenal pricing power, paving the way for jaw-dropping revenue and earnings growth.
As a result, shareholders have reaped a staggering 41.6% total annualised return over the last decade. And investing £500 a month at this rate’s enough to cross the £1m threshold in just under 11 years!
Taking a step back
Becoming a millionaire in the space of a decade is undoubtedly an exciting prospect, even more so given the relatively small amount of capital that Games Workshop shareholders have needed.
However, very few British stocks have delivered this sort of explosive gain, and it’s unlikely that Games Workshop will do the same over the next decade. After all, it’s now a much larger business with a £5bn market-cap. Not to mention, as the firm’s grown, it’s become increasingly dependent on international markets, introducing greater foreign currency exchange risk as well as logistical headaches – most recently in the US with the introduction of trade tariffs.
Nevertheless, it goes to show what smart stock picking can potentially deliver. And while a 3,140% return may not be in the cards for Games Workshop between now and 2035, the company still boasts strong growth potential that’s worth mulling, in my opinion.
