There’s an estimated 10,000 Stocks and Shares ISA millionaires in the UK. There may be more, there may be less. But out of the millions of adults who hold an ISA, I don’t think that’s a lot.
Now consider this: if you want to generate a genuinely life-changing passive income from your Stocks and Shares ISA — enough to actually live on, cover your bills, and stop trading your time for money — you probably need somewhere in the region of £1m in there.
At a 5% yield, that delivers £50,000 a year, or just over £4,000 a month. And it’s tax free, because it’s inside the Stocks and Shares ISA wrapper. It’s the equivalent of a £65,000 salary.
Nowhere near
The uncomfortable truth is this: the vast majority of ISA holders are nowhere near where they need to be. Not because the vehicle doesn’t work — it’s one of the most powerful wealth-building tools available to UK investors — but because most people haven’t approached it with the focus and aggression it requires.
I’m 33, and I think I’m well on my way to that seven-figure target. Not through luck or inheritance, but through years of prioritising growth over income, and investing when others are fearful.
Running some maths
Ok, let’s run some maths. An investor could reach £1.13m by investing £500 a month and achieving an annualised growth rate of 10% over the course of 30 years. This would be a slightly above average growth rate, but more than achievable.
And with £1.13m invested in stocks or bonds yielding 5% annually, the portfolio could deliver £56,500 a year. That works out as £4,708 a month.
The stocks for growth
As the data tells us, most investors will still be in the growth phase. So where to invest?
While my US-listed investments are surging for the sky, my UK-listed investments, such as Melrose Industries (LSE:MRO), are struggling. However, this is where the value appears to be right now.
The stock trades at just 11.9 times forward earnings. That’s a fraction of its industry peers such as Rolls-Royce, GE, and even Safran. This is a great sign of relative valuation.
It’s also occupies a really strong position in the sector with its components featuring on 90% of engines globally — both civilian and military — and a sole supplier position for 70% of its product range. This gives it excellent pricing power.
The business is coming towards the end of a transformation programme that has left it solely focused on the aerospace sector. There appears to be meaningful re-rating potential as the market catches up with the fundamental reality of what Melrose has become.
Risks remain however. This includes the supply chain constraints that have slowed deliveries at Airbus and its peers, and reducing the after-sales component of revenue.
Nonetheless, it’s a great company with strong margins. Well worth considering.
