2024 recovery: a once-in-a-lifetime opportunity to build a £5m Stocks and Shares ISA

Mature friends at a dinner party

The recent stock market correction was understandably painful for many Stocks and Shares ISAs, especially for those concentrated on growth. With inflation causing widespread economic disruption, valuations plummeted and investment portfolios, including my own, were decimated.

However, as bleak as things were, the situation today has significantly improved. And economic forecasts for the UK indicate that 2024 could be the year when the stock market recovery enters its full swing.

That’s particularly exciting for those who’ve just entered the workforce. Why? Because capitalising on cheap shares is a known strategy for achieving higher returns. And with around 45 years of employment ahead of them, investing £250 a month could eventually translate into a £5m ISA! Here’s how.

Building a multi-million-pound ISA

There are a lot of different approaches to elevate a portfolio into seven-figure territory. Each has its own varying degree of risk and speed. But for those operating with a long-term investment horizon, the returns required for hitting a £5m target aren’t actually that high. In fact, it can be done by earning just 12%, which is only slightly ahead of the FTSE 250’s 11% average.

Investing £250 a month at a 12% return for 45 years compounds a portfolio worth just over £5.3m. And best of all, by using a Stocks and Shares ISA, none of this wealth is taxable. And neither are the dividends it may generate during retirement. Assuming a portfolio provides a 4% yield, this would translate into a tax-free passive income of £212,000 a year.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Obviously, achieving a market-beating return for more than four decades is far easier said than done, of course. The cheap stock prices today certainly make it a bit easier. However, 2022 wasn’t the last market correction. Investors can expect multiple periods of similar adverse conditions that may once again significantly disrupt portfolios. And depending on the timing of these events, an ISA may end up falling short of the £5m threshold when 2069 comes along.

Nevertheless, by picking the right businesses to buy and hold, investors can still potentially end up significantly better off in the long run. And that’s what makes it a once-in-a-lifetime opportunity as investors must start young.

Of course, the question now becomes, which stocks should investors buy when striving for this nest egg?

Finding the best stocks to buy now

The FTSE 350 provides a diverse pool of companies to pick from. But when looking specifically for firms that can systematically deliver double-digit returns, my attention is drawn to organic growth capabilities. And that makes Howden Joinery (LSE:HWDN) a potentially lucrative opportunity.

It’s a vertically integrated construction materials provider for tradesmen designing and supplying fitted kitchens. On paper, it’s not the most exciting-sounding enterprise. But looking deeper reveals plenty of promising opportunities.

The UK housing shortage is providing ample long-term tailwinds. Its logistics infrastructure ensures stock is constantly available. And its expanding cash flow generation has enabled management to grow dividends at an average annualised rate of 13% over the last five years.

Of course, there’s no guarantee it will maintain this impressive performance moving forward. And with ample competition, Howden needs to continuously innovate its designs to stay relevant among continuously changing consumer tastes.

Nevertheless, I believe the stock has the potential to help push my ISA toward £5m. That’s why I’ve already bought shares.

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Zaven Boyrazian has positions in Howden Joinery Group Plc. The Motley Fool UK has recommended Howden Joinery Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.