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The return someone gets from a Stocks and Shares ISA will depend on how much money they put into it and what investments they make.
Some people already have an ISA with a seven-figure valuation. While that may sound like the stuff of fantasy for many people, I think it is actually a fairly reasonable goal for someone who has a long-term approach to investing and is willing (and able) to max out their annual ISA contribution annually.
Aim for a million in 2045 – from zero today!
For example, if somebody opened a Stocks and Shares ISA today, put in £20,000 each year, and achieved a compound annual growth rate (CAGR) of 8%, the ISA ought to be worth over £1m after 20 years. Put the champagne on ice for 2045, Jeeves!
That CAGR can be made up of both share price growth and any dividends received. But it is reduced by a couple of factors too. An obvious one is share price declines.
Another thing that eats into the CAGR, although it may be less noticeable at first, is fees and costs associated with the Stocks and Shares ISA. That is why I think a smart investor will carefully compare the choices when picking the ISA they think suits their own needs best.
On balance, though, I think that a prudent investor who knows their limits and takes a considered approach could realistically aim for an 8% return while sticking to proven blue-chip businesses.
One share to consider
One of the shares in my own Stocks and Shares ISA is self-storage operator Safestore (LSE: SAFE).
At first glance, this might not seem like an inspired choice. The share price is down 29% in the past year alone.
Meanwhile, the dividend yield of 4.9% offers some compensation to a shareholder like me. Still, it comes nowhere close to balancing out that one-year share price decline, let alone giving me an 8% CAGR.
Look a little closer, though, and it may become more apparent why I like Safestore and have added to my shareholding during its recent period of share price weakness.
For one thing, demand for self-storage space in the UK continues to grow but is far behind the much more developed US market. So I expect the industry to get bigger in coming decades.
Safestore has a proven business model, strong and distinctive brand, and an existing customer base. Many of its customer have used the storage facilities for years.
The self-storage business is to some extent a form of property investment, so one risk I see for Safestore is that interest rate uncertainty could make it harder for the company to keep financing new sites at an attractive long-term rate, pushing up costs.
On balance, though, I see the company as a strong one, trading at an attractive share price.
