Here’s how I’d aim to turn an empty Stocks and Shares ISA into £1m

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According to HMRC figures, there are estimated to be around 2,000 ISA millionaires in the UK.

These investors have likely been adding money to their Stocks and Shares ISA for many years. But if I was starting from zero, what would it take to reach millionaire status? That’s what I’ll aim to demonstrate today.

ISA limits

I’d say there are three main factors in targeting a million-pound portfolio. First, it starts with how much an investor can add to their ISA.

Since 2017, the annual ISA allowance has been £20,000. This is the maximum sum an investor can contribute per tax year. Not everyone will be able to reach this maximum every year, but I’d attempt to fill it as much as possible.

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Average returns

The next part of the equation is the rate of return. That’s how much an investment can grow every year. Historically, stock market investments have averaged around 8-10% annually.

It’s important to note, as that’s just an average, the actual return can often be much greater or much lower. For instance, the S&P 500 rose by a whopping 30% in 2013. But last year, it fell by 19%.

Similar swings in performance can be found in the UK’s FTSE 100. But I feel that accepting these swings is the price to pay to reach millionaire status.

How long will it take?

Finally, the third factor to consider is duration. Reaching a million-pound ISA won’t happen overnight. It will likely take many years.

Let’s assume that if I can maximise my ISA allowance every year and achieve an average 10% a year return, I calculate it would take 19 years to turn an empty ISA into a £1m.

That means even if I start at the age of 40, I could retire with a £1m pot less than two decades later.

There are a few things to bear in mind though. Just because historically the average stock market return has been around 10%, it doesn’t mean the coming decades are guaranteed to do the same.

It could be higher or lower. So I consider it prudent to make some estimations based on a range of outcomes.

Similarly, not all investors would be able to maximise their Stocks and Shares ISA allowance every year.

The following table shows how many years it could take to reach a £1m ISA, based on this range of assumptions.

 Annual amount invested 8% 10% 12%
£5,000 37 years 32 28
£10,000 29 25 23
£20,000 21 19 17
Years to reach £1m

No guarantees

Another important point to consider is that the government could change ISA rules in the future. I can’t imagine the maximum allowance being lowered as it’s designed to incentivise long-term saving. But there’s no guarantee with this.

Finally, note that £1m today might seem like a lot of money. But as prices rise, inflation can reduce its spending power in the future.

Overall, my own plan to reach a £1m ISA is to maximise my annual contributions. And by carefully selecting a basket of top shares, I’d aim to achieve gains of at least 12% a year.

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