I’m copying ISA millionaires to try and build generational wealth!
Young black colleagues high-fiving each other at work
There were 1,160 Hargreaves Lansdown ISA millionaires as of the end of May. I’m hoping in the decades ahead I’ll be joining this illustrious group.
But what will help me get there? Well, that’s what I’m here to explore.
The recipe
It seems there are a few key ingredients to the recipe for having over a million quid stashed away in an ISA.
The first is one we preach here at The Motley Fool is that building wealth takes time. Contrary to what many people tend to promote nowadays on the internet, generating wealth from the stock market isn’t an overnight process.
According to a recent report from the investment powerhouse, the average age of one of its ISA millionaires is 74. By comparison, the average age of its regular Stocks and Shares ISA investors is 51.
The second is focused more on where to invest. And it seems UK equities are where investors should strongly consider looking right now.
ISA millionaires on average have 44.7% of their cash tied up in the UK as opposed to 38.5% for all Hargreaves Lansdown ISA clients. The UK stock market’s jam-packed with bargains right now and shrewd investors seem to be making the most of that.
Putting it into practice
But putting this into practice, which type of stocks look like a savvy buy right now? I reckon Shell (LSE: SHEL) could be a great shout for investors to consider buying.
In the last 12 months, the stock’s posted a cracking performance. During that time, it’s returned 21.5%. Zooming out, in the last decade, it’s returned a steady 16.1%.
That said, its share price has experienced large peaks and troughs during that time. And that’s one of the largest threats I see with the business. The stock’s highly cyclical.
When the price of oil rises, as it did during the pandemic, the Shell share price often blossoms. On the other hand, when prices fall, like we saw across the first half of June, the stock can suffer.
Even so, BP shares look dirt cheap today. They’re trading on 8.1 times forward earnings. That’s below the FTSE 100 average of around 11.
Enhancing gains
To go with that, there’s also the chance to make some passive income. BP has a dividend yield of 3.8%, slightly above the average of its Footsie peers.
To build wealth even quicker, with the income I received, I’d simply reinvest it back into buying more shares. By doing that, I’d benefit from dividend compounding, which is an effective method to snowball gains.
Its yield is also forecast to rise this year. Management’s reiterated its desire to continue returning value to shareholders. We’ve seen this in action with its latest $3.5bn share buyback scheme.
Investing in the business won’t come without challenges. Aside from volatility, it faces other issues such as potential rising windfall taxes.
But by copying ISA millionaires and investing for the long run, I reckon shares like Shell will one day help me reach the milestone. If I had the cash, it’s a stock I’d strongly consider buying today.
Should you invest £1,000 in Shell right now?
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown 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.