Here's how I can try to get rich, with just £200 a month in a Stocks and Shares ISA

So, a Stocks and Shares ISA is for people with a lot of money to invest, right?

No, that is not true. In fact, I believe it can be the best way for ordinary people like us to improve our long-term financial health.

We're hearing about AI technology stocks now, how they're worth billions of dollars… and how they could crash at any moment. Terrible things.

But here in the UK, I think we have a unique opportunity to significantly reduce the risk and set up a great way to get a second income in the years to come.

Wealth from dividends

It came down to two main things.

First, we have a lot FTSE 100 stocks are consistently profitable and pay huge dividends. And even though the stock market has been bullish in 2024, I still see a lot of buying.

Then there are the benefits that ISA Shares and Shares bring. An ISA protects our tax benefits, and allows us to invest in small regular amounts. With the provider I use, I can pay £25 a month.

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

What is the benefit?

How much is our £200 a month? Let's look at an example.

I measure National Grid (LSE: NG.) as one of the FTSE 100's long term real income earners. But let's take a quick look at the share price.

From that chart, we see stocks taking a dive at the end of May. The company surprised the market with a new issue of £7bn, to raise money to improve its energy delivery networks.

I think the market is overreacting, but it shows one of the risks of stocks. Even the most boring company can create the wrong kind of excitement at times. It means that we really have to go for a diverse selection of stocks.

The magic of compounding

However, the decline raised the forecasted bond yield to 6%. It is not the largest FTSE 100, with a contribution of more than 9%. But I think it would be one of the most reliable.

Let's assume a share price increase of 2% per year, in line with the UK's inflation target.

To generate that kind of return, we have to use our dividend money to buy more shares.

And an investor who starts doing that today, and keeps it that way for the next 20 years, could end up losing more than £110,000. From just £200 a month.

Risk vs reward

Now, that's just one example, and things can go wrong. If National Grid decides to raise more money in the future, that could further dent investor confidence.

And with every company, we have to look at much more than the benefits. Credit and cash flow are my two most important factors.

But the UK stock market has averaged annual returns of around 7% for decades. I think a diversified ISA portfolio focused on dividend stocks has a good chance of beating that.