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I am on a mission to increase my Shares and Shares ISA to £1m, or as close as possible. With the right plan, discipline, and time, it's a target I'm willing to hit.
I've started and I'm half way there, but if I were starting from scratch, this is what I would do.
Filling the pot
Firstly, I will aim to top up my Stocks and Shares ISA as much as possible. Currently, the most I can contribute is £20,000 a year. But a one-year subscription can take decades to reach millionaire status.
If I can keep topping up my ISA every year, I will be able to accelerate my goal. I calculate that if I add £20k a year, and grow the pot by 15% a year, I should reach my goal within 15 years.
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The program
In the last ten years, mark that FTSE 100 stocks managed to grow 6% annually, including dividends. If I started this program 10 years ago and just invested in the Footsie index tracker, I would be far from my goal right now.
Thankfully, that's not what I did. Instead, I focused on the fastest growing segments of the market. Technology has been a major driver of growth in recent years. And my investments in US tech stocks have paid off well, so far.
Most UK stocks also performed well. One of my best performing stocks in the UK was Games Workshop. Its share price has gained more than 1,000% from 2017 to 2020.
Stock picks like these have significantly increased my average ISA performance and this is a strategy I intend to continue with.
The highest number of ISAs
One of the most promising shares I currently have in my ISA Warpaint (LSE: W7L). This UK-based cosmetics business is going from strength to strength. Sales and profits are increasing rapidly as it expands to new stores and outlets.
I see a possible parallel between Warpaint today and Games Workshop in 2017. When I bought Games Workshop shares, it had a market capitalization of £385m. Today, Warpaint is £419m.
At the time, Games Workshop showed many signs of a high-quality assignment. For example, it offered a return on capital of 40%, an 18% profit margin, and a healthy balance sheet. It also offered a dividend yield of 6% and looked reasonably priced with a price-earnings ratio of just 13.
Similarly, Warpaint now also looks like a high-quality assignment. Given a 36% return on capital employed, a 20% profit margin and a healthy balance sheet.
Its dividend yield of 2% is not that great. And its price-to-earnings ratio of 21 isn't cheap. That said, given the strong rates of earnings growth, it still looks reasonably priced to me.
Recent trading momentum continues to be strong. Note that some US competitors have reported lower demand for other cosmetics. Any impact on Warpaint remains to be seen.
I may need to monitor how the business is doing in the coming months but, so far, I am happy with my purchase.
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