I love the Individual Savings Account (ISA). Products like the Stocks and Shares ISA, Cash ISA and Lifetime ISA let investors generate long-term wealth without having to pay a penny to the taxman.
While I own each one of these products, I invest the lion’s share of my extra cash each month in my Stocks and Shares ISA. And by using this well-tested savings trick I hope to supercharge my retirement fund over the coming decades.
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.
Big returns
Keeping cash on account is a good idea, and I use my Cash ISA and Lifetime ISA for this purpose. This helps me to balance risk and to keep money on hand for a rainy day.
But as I say, I mainly use my Stocks and Shares ISA to hit my investment goals. Why? The return on UK shares stands at 8-10% over a long time horizon. This is far ahead of what I can expect to make with those other products.
Let’s say that I have £20,000 on hand to invest in British stocks. If I attained a 9% annual average return over 30 years, I would (excluding fees) have turned that into £294,612.
A model share
So what sort of stocks would I choose for my ISA? One I really like at the moment (and which I already own in my own portfolio) is Games Workshop (LSE:GAW).
Dating back to 1978, this FTSE 250 firm sets the gold standard in the field of tabletop games and miniatures. It’s a niche hobby but a highly lucrative one, and sales of Games Workshop’s Warhammer products are soaring across the globe.
Since the mid-2010s, the company’s share price has rocketed by more than 1,700%. And what’s more, dividends have (largely speaking) increased rapidly over that period, as shown in the graphic below.
| Year | Dividend Per Share |
|---|---|
| 2023 | 415p |
| 2022 | 285p |
| 2021 | 185p |
| 2020 | 145p |
| 2019 | 155p |
| 2018 | 126p |
| 2017 | 74p |
| 2016 | 40p |
| 2015 | 52p |
While it faces a threat from the growth of 3D printing, I’m still expecting Games Workshop’s profits to keep soaring as it pushes into new geographies.
And it’s agreement with Amazon to produce Warhammer-based films and TV content could also take earnings to the next levels.
The route to £1m
That £294,612 I could make from UK shares like this would represent a pretty healthy return. But I think I could do even better.
If I invested some extra cash each month, I could essentially ‘hack’ the system and make some truly life-changing wealth. This is thanks to those impressive rates of return and the miracle of compounding, where I essentially earn interest on my interest.
If I could invest an extra £400 a month I would — assuming that 9% return remains unchanged over those 30 years — have a staggering £1,026,909 sitting in my account. I’d have become one of those legendary ISA millionaires.
There are stacks of top stocks to help me achieve this goal too. And right now many of them look pretty cheap by historical standards.
This post was originally published on Motley Fool
