I love share investing with my Stocks and Shares ISA. If I didn’t, I wouldn’t be doing the job I am (13 years at The Motley Fool and counting!) That doesn’t mean I make stock markets the sole plank of my investment strategy.
Putting all of your money in shares is a high-risk option. Equities can go down in value as well as up, while come companies also go bust (albeit rarely). Holding cash and other less-volatile assets is therefore important to create a well-rounded portfolio that balances reward and risk.
Still, the broader long-term direction of stock markets is up. And while past performance isn’t always a reliable guide to the future, shares typically generate returns far higher than any other asset class. So what exactly am I doing?
Clear thinking
My thinking is clear: not prioritising share investing could cost me a shot at a comfortable retirement. There’s a wealth of data out there to prove it.
Hargreaves Lansdown said that longer-term, you could be missing out on thousands of pounds in returns, and this could significantly impact your long-term outcomes, be that a comfortable retirement or moving onto or up the housing ladder.
Ah, but they would say that, you might be thinking. Hargreaves makes a living from encouraging people to buy stocks. The thing is, the investing specialists have done the research to back up their claims.
They took a theoretical £1,000 lump sum, and worked out what the average saver and share investor would have earned over various timescales. Their numbers were staggering…
What’s the difference?
| Time period | Savings account | Shares account |
|---|---|---|
| 5 years | £1,180 | £1,521 |
| 10 years | £1,205 | £2,679 |
| 20 years | £1,439 | £3,904 |
| 30 years | £2,430 | £6,007 |
Hargreaves Lansdown calculated the average savings rate based on Bank of England base rates. The return on the shares account reflecting investing £1,000 in an instrument tracking the MSCI All Country World Index.
As you can see, the wealth created by share investing can be substantially higher (especially given gains made in an ISA are tax-free). And the returns if dividends are reinvested are even greater — over 30 years, an investor could make £11,779 using this strategy. With an investment far greater than £1k, the amount can be life changing.
For this reason, I invest about 80% of my spare cash each month in the stock market, with the remaining 20% held in a Cash ISA to manage risk.
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.
Which shares are in my ISA?
Tracker funds that follow an index can deliver excellent returns, as the table shows. When complemented by individual stocks, the long-term returns investors can shoot through the roof.
I hold an exchange-traded fund (ETF) tracking the S&P 500, for instance. But I also hold more thematic funds and particular shares like Legal & General (LSE:LGEN) in my Stocks and Shares ISA.
That way, I get the same diversification benefits as well as being able to target greater returns. With Legal & General shares, I hold one of the FTSE 100‘s greatest passive income shares, the dividends from which I reinvest to grow my portfolio.
Dividends here have grown every year bar one since the early 2010s, and I’m optimistic will continue to do so as demand for retirement, protection and wealth products steadily grows. Its share price may experience pressure during stock market downturns. But I expect Legal & General to remain a great long-term share for me.
