By combining the Stocks and Shares ISA and Cash ISA, investors can target robust long-term returns and effectively balance risk and reward. And because they’re saving on tax, they have more money to reinvest to grow their wealth more effectively (a process known as compounding).

These tax savings — which totalled £6.7bn in 2023/2024 alone — have helped the number of stock market millionaires to blossom. There are now some 4,850 Stocks and Shares ISA millionaires in the UK, up from 450 in 2016.

These people will have had different investing strategies according to their long-term goals and risk tolerance. Here’s one way that a regular investor today could target a retirement pot of a million or more.

A £1m+ portfolio

The first thing to consider is prioritising the majority of savings in a Stocks and Shares ISA and the remainder in a Cash ISA. Taking the opposite approach is unlikely to create a return for life-changing wealth.

Let’s say someone has £500 a month to invest. If they put 80% of this in shares and the rest in cash savings, they could — after 30 years — have £1,075,965 to retire on.

That’s based on an average annual return of 4% on the Cash ISA, and 10.5% on the Stocks and Shares ISA. Such returns can’t ever be guaranteed, of course, especially over that long a period. But they’re possible.

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.

Diversifying for success

As well as diversifying across these low- and higher-risk products, individuals can take this theme further by spreading their money across a wide range of assets with the latter.

Investors can use the Stocks and Shares ISA to buy a wide range of shares, trusts, funds and bonds. Making the most of this opportunity is key, in my opinion.

I think investing in at least 20 different companies can be a good target to think about. Spreading cash across a plethora of companies, sectors, sub-sectors and regions can also achieve this balance as well as provide a stable return across the economic cycle.

The only trouble is that purchasing dozens of companies can cost a lot in transaction fees and Stamp Duty. Investors can get around this problem via an investment trust or an exchange-traded fund (ETF) that already holds a number of stocks.

A top fund

The iShares Core MSCI World ETF (LSE:IWDG) is one that I feel demands serious attention. This is due to its exceptional average return since its creation in 2017 — at 10.5%, this is exactly the rate of return I’ve used in my projections above.

As the name suggests, this fund invests in a range of global companies, 1,326 in all. And with over 71% of the fund invested in US shares, it provides significant exposure to the world’s largest economy.

This heavy weighting also means performance is closely tied to the health of the Stateside economy. But a substantial number of UK, Canadian, Japanese, and other international stocks helps to offset this (while also perhaps adding their own risks).

This iShares products are well diversified by sector, and holds companies as diverse as Nvidia, JPMorgan, Shell, Siemens and Toyota. It also has a reasonable total expense ratio of 0.3%.

There’s no one set way to target a million pound retirement. But a thoughtful mix of cash savings and investment in this ETF could put investors well on their way.