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I’m on a mission to grow my Stocks and Shares ISA to £1m, or as close as I can. With the right plan, discipline, and time, it’s a target I’m determined to hit.
I’ve already started and I’m part way there, but if I was starting from the beginning, this is what I’d do.
Filling the pot
First, I’d aim to fill my Stocks and Shares ISA as much as possible. Right now, the maximum I can add is £20,000 a year. But a single year’s subscription would likely take many decades to reach millionaire status.
If I can consistently fill my ISA allowance every year, I’d be able to fast-track my goal. I calculate that if I add £20k a year, and grow the pot at 15% per annum, I should achieve my target within 15 years.
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The plan
Over the past decade, note that FTSE 100 shares have managed to grow by 6% a year, including dividends. If I started this plan 10 years ago and simply invested in a Footsie index tracker, I’d be a long way away from my goal right now.
Thankfully, that’s not what I did. Instead, I focused on faster growing parts of the market. Technology’s been a huge driver of growth in recent years. And my investments in US tech shares have paid off handsomely, so far.
Many UK shares have also performed exceedingly well. One of my best performing UK shares was Games Workshop. Its share price gained by over 1,000% from 2017 to 2020.
Picking shares like this significantly boosted my average ISA performance and this is a strategy I intend to continue.
ISA top pick
One of the most promising shares I own in my ISA right now is Warpaint (LSE: W7L). This UK-based cosmetics business is going from strength to strength. Sales and profits are growing at pace as it expands into new stores and retailers.
I see may similarities between Warpaint today and Games Workshop in 2017. When I bought Games Workshop shares, it had a market capitalisation of £385m. Today, Warpaint is £419m.
At the time, Games Workshop exhibited many signs of a high-quality share. For instance, it offered a return on capital employed of 40%, an 18% profit margin, and a healthy balance sheet. It also offered a 6% dividend yield and looked reasonably priced with a price to earnings ratio of just 13.
Similarly, Warpaint now also looks like a high-quality share. If offers a return on capital employed of 36%, a 20% profit margin and a healthy balance sheet.
Its 2% dividend yield isn’t as large though. And its price to earnings ratio of 21 isn’t as cheap. That said, given strong levels of earnings growth, it still looks reasonably priced to me.
Recent trading momentum continues to be robust. Note that some competitors in the US have reported slowing demand for some cosmetics. Any effect on Warpaint is yet to be seen.
I’d need to monitor how business performs over the coming months but, so far, I’m happy with my purchase.
