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Having a million-pound portfolio tucked away inside a Self-Invested Personal Pension (SIPP) can be the key to enjoying a far more comfortable or even luxurious retirement lifestyle. So it’s hardly surprising that it’s one of the most popular long-term investing objectives among British investors.
Obviously, building a seven-figure pension pot is far easier said than done. Yet it’s not as impossible, nor does it take as much money as most ordinary people might think. In fact, when leveraging the power of a SIPP, putting aside just £750 a month could be all that it takes.
Tax relief + compounding
What makes a SIPP such a powerful retirement saving tool is the benefit of tax relief. The government refunds any income taxes that have already been paid on deposits. As such, for those in the Basic rate tax bracket, it means that every £750 deposit is automatically topped up to £937.50. And there’s also the added protection against capital gains and dividend taxes as well.
When looking at the FTSE 100, investors have historically earned an average return of 8% a year over the long run. Let’s assume the UK’s flagship index continues to deliver similar returns in the future. Investing £937.50 at this rate each month will surpass the £1m threshold in roughly 27 years.
Specifically, a portfolio will reach £1,070,44, but only £303,750 of that will have been investor contributions. The rest is pure profit.
Aiming higher
Instead of relying on index funds, investors can aim for impressive returns to accelerate the compounding process by picking individual stocks.
Perhaps a terrific example of this from the last 25 years is JD Sports Fashion (LSE:JD.). The branded sports/fashion retailer leveraged exclusive partnerships to penetrate new markets across the globe. At the same time, management sucessfully adapted to the shifting consumer spending landscape, with the rise of online shopping.
The result has been a massive expansion of its brick & mortar store portfolio as well as rapid online sales growth, sending both revenue and earnings flying. And combined, these factors have led to a total return of 9,070% since September 2000, including dividends.
That’s the equivalent of earning 19.8% a year. And anyone who has spent the last 25 years drip feeding £937.50 into this stock not only surpassed the £1m in just 15 years, but has continued to go on and reach £7.6m!
Still worth considering?
In 2025, JD Sports is still expanding and, by continuing its exclusive partnerships, has further cemented its pricing power. However, the company’s currently having to navigate a rough patch.
Tariffs have begun creating logistical and supply chain headaches, not just for JD Sports but for its leading partnered brands like Nike and Adidas as well. And when paired with less-than-ideal economic conditions, the stock’s seen earnings come under pressure, sending its share price firmly in the wrong direction since its peak in late 2021.
Management’s no stranger to unfavourable economic cycles. And with a resilient balance sheet, JD Sports’ share price may have the potential for a strong recovery once market conditions improve. As such, investors looking for individual stocks to add to their SIPPs may want to investigate this long-term winner further, even with its recent troubles.
