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There is a lot of uncertainty surrounding the stock market in the short term. But that shouldn’t stop me formulating a clear long-term plan for my Stocks and Shares ISA.
And that’s what I do now, especially when I have a target to take towards £1m.
Long term investment
With energy and cost-of-living problems threatening to destabilize households and businesses, many global stock markets have experienced sharp declines this year.
But investing should be a long-term activity, in my opinion. Looking back, the world’s economies have gone through many recessions, wars, and other periods of uncertainty. However, the average annual FTSE 100 The return for several decades is around 8%.
By investing regularly over the next decade, I hope to achieve at least that level of performance. Remember that in some years stock market returns will be slow and disappointing. And future returns come with no guarantees.
That said, there are dozens of stocks that have outperformed the average. If I plan to invest £250 a month for the next three decades, I calculate that I will reach £1m with an average return of around 14%.
Around 25% of FTSE 100 stocks have managed this over the past 10 years. By doing some homework I aim to find the next highest yielding groups and add them to my Stocks and Shares ISA. I have to admit, however, that 14% is a big return figure and I may need to increase the monthly investment amount.
How to find the best stocks
I have a list of criteria that I use to determine what might be a good investment. First, I want high profit levels. To me, that means double-digit profit margins and return on capital employed. I consider this to be the best benchmark of a high-quality company.
Next, I like to see steady sales and revenue growth. Severe fluctuations can lead to volatile stock prices. I prefer to own stocks that have moved up smoothly for many years.
As a long-term investor, I like to invest in companies that I think can sustain a competitive advantage for many years. Expert investor Warren Buffett referred to this as ‘moat’. Sometimes it’s hard-branded or patented.
Ultimately, I prefer to own stocks with strong long-term trends. For example, this could be related to population growth, home ownership or medical needs.
My Stocks and Shares ISA Options
Now, there are many options that meet my criteria. Many of their stock prices have fallen along with the rest of the market this year. But that could create an opportunity to pick up these long-term winners at a discount.
For my ISA this year, I would love to add. Ashted, Howden joining group, Expert, take it easy And Diageo.
Keep in mind that the near-term uncertainty for these stocks may continue and share prices may fall in the coming months. But by drip-feeding £50 a month for each choice, I lower my average purchase price if that’s the case. Overall, this is the type of automated scheme I implement to help me become an ISA millionaire.