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Different people have their own lifetime best financial move. It might be starting a business, or spotting an unattributed Old Master in a provincial antique shop or auction house. What about the simple move of starting a Stocks and Shares ISA?
Perhaps, surprisingly, I think that could yet turn out to be the best financial move of a lifetime. Let me explain why.
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The power of long-term investment
Imagine I invested my annual Stocks and Shares ISA allowance of £20,000 each year for three decades.
That move alone would mean me putting aside £600,000. That is a significant amount!
By tucking it away in an ISA and investing it, I would be putting the money to work rather than frittering it away on daily treats from pricy drinks to posh meals.
But imagine something else. By investing it well, I could compound the value of my investment at 10% annually. Doing that, from a standing start today, my Stocks and Shares ISA could be worth over £3.6 million in 30 years!
That sounds like it could well be the financial move of a lifetime.
Four things to do
To get there, there are four things I would need to do. The first one is something I could do today – set up a Stocks and Shares ISA. There are lots of options available, so I would choose the one that best suited my own needs.
My second move would be coming up with the £20,000 annually to invest. Even if I could not manage that much, I would start with what I could, and try to build on that. I would still use the same investing approach, but if I invested less, my returns would be proportionately lower.
Thirdly, I would need to find shares to buy. I would keep my Stocks and Shares ISA diversified across a range of different shares. Finally, I would monitor my ISA over time to consider whether the investment case for any of my holdings had changed.
Finding shares to buy
In my example above, I discussed a 10% compound annual growth rate as an example. My Stocks and Shares ISA might do even better if I found shares like Alphabet (up 148% in five years) or London-listed Kainos (up 74% in five years).
Even a 10% annual return though, is harder to achieve over the long term than it may sound.
One share I hope might help me achieve that sort of return is M&G (LSE: MNG). It has the sorts of advantages I look for as a long-term investor, namely a large, enduring market, a strong brand, and a big existing customer base.
The company has grown its dividend annually in recent years and currently the dividend yield stands at 9.9%.
Since its 2019 listing though, the M&G share price has fallen 12%. So it has not delivered a 10% compound annual growth rate lately. I see ongoing risks, such as tight household budgets leading the asset manager’s customers to withdraw some funds, hurting profits.
But over time, I remain upbeat about the outlook for M&G. If I can buy the right companies for my Stocks and Shares ISA, I think it could end up being a boon for my personal finances.