Here’s what I could achieve in 10 years if I invested £300 a month in a Stocks and Shares ISA

Stocks and shares ISA It is a powerful investment tool. Not only does it give you access to a variety of assets that can grow wealth quickly (like stocks and funds), but all gains and income generated in it are completely tax-free.

Want to see an example of how powerful this type of investment account is? Let’s look at how much money I could potentially make if I contributed £300 a month to one of these products for 10 years.

Please note that tax treatment depends on each customer’s individual circumstances and may change in the future. The content in this article is for informational purposes only. It is not intended to be, and does not constitute, any tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.

We aim for 8 percent per year

There is no standard annual return on Stocks and Shares ISAs. Ultimately these will depend on what you decide to invest in, and there are many different options.

However, with a reasonable investment strategy, I think it is reasonable to expect a return of 8% per year in the long term. It is often said that stocks return between 7-10% per year over the long term, so I think 8% is very realistic.

The key to achieving this type of return is to build a well-diversified investment portfolio. If an investor owns only a handful of stocks, the risk will create lower returns as performance may decline due to weakness in the portfolio.

Similarly, investing in only a single geographical market, such as the UK, carries the risk of underperformance. I recently calculated that in the last 20 full calendar years the UK FTSE100 the index had returned only 6.3% per year.

A solid investment strategy

But building a diversified portfolio isn’t difficult. One easy way is to invest in a global index fund. Vanguard FTSE All World UCITS ETF (LSE: VWRP). This mutual fund offers exposure to more than 3,500 stocks, including big names Apple, AmazonAnd Nvidia. They also have access to different geographical markets such as the USA, Europe, UK and Asia.

In terms of performance, this fund has performed well in recent years. Over the five-year period through the end of October, it returned 69% (before platform fees and trading commissions), which equates to around 11% on an annualized basis.

Of course, past performance is not indicative of future returns. If there were a pullback in the global stock market, this product would deliver weak returns in the short term (and perhaps beyond).

Still, overall there’s a lot to like. With an ongoing fee of just 0.22% per year, I think this fund could be an excellent foundation for an investment portfolio.

Adding a few individual stocks or niche mutual funds to target specific areas of the market (artificial intelligence (AI) or healthcare, for example) can help build a very good portfolio.

We turn £300 per month into thousands

Going back to the 8% annual return, let’s say I invested £300 a month in a Stocks and Shares ISA for 10 years and on average I was able to achieve this return. In this scenario, I would have around £52,000 at the end of the decade.

This is a significant amount of money. And I won’t have to pay any taxes for it. What a great result.