Ever wondered what the long-term impact of taking a Stocks and Shares ISA seriously in the early part of your adult life may turn out to be worth?
The answer could be millions of pounds by the time you reach retirement age. Let me explain.
Three key elements determining long-term outcomes
There are three decisive factors when it comes to calculating how big a Stocks and Shares ISA might grow to be: how much money is invested in it, at what growth rate, and for how long.
Say someone starts putting in £800 a month when they are 27 and does so for four decades, before retiring at 67 (the State Pension age currently being phased in). If they can compound that ISA by 5% annually, it should be worth £1.2m by the time they are 67.
If they can achieve a compound annual growth rate of 7%, it will be £2m. With a compound annual growth rate of 9%, the ISA ought to be worth £3.4m by the age of 67.
Small-seeming differences can have large impacts
Did you notice something about those numbers? A couple of percentage points here or there may not seem significant at first. But over time, they can add up to the point that they make a huge difference.
That is because of the long-term impact of compounding. Based on that, squeezing out every bit of performance while carefully managing risks is important. That involves paying close attention to fees, charges, commissions and other costs when choosing a Stocks and Shares ISA to use.
Clearly though, the choice of shares owned in the ISA over time also plays a critical role.
One share to consider for its long-term prospects
Let me stick with the 7% example from above. Is that a realistic goal over the long term? I think it can be if an investor focuses on trying to construct a well-diversified portfolio of blue-chip shares.
One of the shares I think merits consideration for the performance I believe it may deliver over the coming decade or two is FTSE 100 consumer goods maker Reckitt Benckiser (LSE: RKT). Reckitt is the force behind well-known household brands including Dettol and Finish.
The market for consumer goods is resilient. Thanks to its portfolio of premium brands, this multinational manufacturer is able to command a pricing premium.
In turn that is good for profits and helps fund a dividend. The dividend yield on the share currently sits at 4.7%.
But over the past five years, the Reckitt Benckiser share price has fallen 31%.
That partly reflects a disastrous infant nutrition acquisition and historical product litigation expenses. While both relate to past activity, they remain a risk to medium-term financial performance at the company.
However, the share price fall means that the company now sells for less than 10 times earnings. That looks like an attractive valuation for the blue-chip business, as far as I am concerned.
Should you invest £5,000 in Reckitt Benckiser Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Reckitt Benckiser Group Plc made the list?
Christopher Ruane owns shares in Reckitt Benckiser.
