Some people put a little bit of money into an ISA now and again, hoping they will end up with more than they contributed.
For others, though, a Stocks and Shares ISA can be the path to becoming not just a millionaire, but multi-millionaire.
With that objective, here the approach I would take if I had sufficient spare money.
Choosing a Stocks and Shares ISA
My first move would be to decide what Stocks and Shares ISA to choose.
There are lots of options available. I think picking the one that suited my own financial circumstances and objectives best is important.
Then, if I could, I would start paying in my annual allowance of £20,000.
Finding shares to buy
How can one become a millionaire – several times over – in the stock market?
The name of the game here is growth.
That does not necessarily mean sticking to what are known as growth shares. But it does mean trying to find shares to buy that — whether through price growth, dividends, or both – help my ISA ending up worth more than the money I put into it.
Imagine, for example, I could compound the value of my ISA at 12% annually, putting in £20k each year. I should be a millionaire in under 20 years – and a multimillionaire in 23 years.
But, though 12% might not sound challenging, achieving that compound growth rate on average each year (whether through share price increases, dividends, or a combination of both) is difficult.
I would need to make effort when hunting for shares to buy for my ISA.
Looking to the long term
So, what would be a promising place to begin such a search?
I would stick to sectors of the economy I felt I could understand. Then, I would look for businesses where I reckon there is a mismatch between long-term value (remember – my timeframe here to become a multi-millionaire is in decades) and the current share price.
As an example, take British American Tobacco (LSE: BATS).
At face value, a company selling cigarettes might not seem like a great investment idea. After all, smoking is declining in many markets. Indeed, I see that as a risk for the FTSE 100 firm.
That may help explain why the shares have gone nowhere in five years. Indeed, the share price now is within 1% of where it was five years ago.
But the dividend yield is a juicy 8.3%.
Not only that, but the company’s track record of annual increases in the dividend per share stretches back decades. It plans to keep that up, though of course no dividend is ever guaranteed to last let alone grow.
However, I think the business has a lot going for it.
Cigarette use may be declining, but British American still sells billions of them each week. Its brand portfolio gives it pricing power. That could help it manage the decline of demand for cigarettes — and I also see it as a positive as the firm grows its non-cigarette portfolio of tobacco products.
This post was originally published on Motley Fool
