The State Pension should form the bedrock of your retirement income. But don’t kid yourself, it’s nowhere near enough to live on comfortably. You have to save under your own steam as well.
Luckily, there’s an easy and accessible way to do that. By investing regular sums in a Stocks and Shares ISA.
If that sounds a bit technical, please don’t be put off. It’s pretty straightforward to set one up, and the rewards make it worthwhile. Over the last decade, the average Cash ISA returned just 1.21% a year, figures from Unbiased show. The average Stocks and Shares ISA returned 9.64%.
Does a Stocks and Shares ISA beat cash?
The difference between those two figures will roll up massively over time. Somebody who puts £200 a month into the average Stocks and Shares ISA for 30 years would end up with £606,594, based on those figures. And in a Cash ISA? They’d have just £130,839.
That means a staggering £475,755 less. Like I said, investing is worth it. Of course, equities are more volatile than cash. Returns aren’t guaranteed. But history shows shares easily outperform savings accounts over time. Only invest money you can ideally leave untouched for decades. As a further incentive, all the share price growth and dividend income you generate will be entirely free of tax. For life.
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, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making any investment decisions.
At The Twelfth Magpie (formerly The Motley Fool UK), we believe a terrific way to generate a passive income is to build a balanced portfolio of shares from the FTSE 100 and FTSE 250. It’s important to build a balanced portfolio of at least a dozen, so if one or two struggle, others should hopefully compensate.
Are Lloyds’ shares right for you?
Newbie investors might consider a solid household name like Lloyds Banking Group (LSE: LLOY). This is a stock I bought three years ago, and haven’t looked back. Lloyds’ shares are up 120% in that time, while the dividend yield has hovered around 5%. I’m up almost 140% in total, with dividends reinvested.
A word of warning: there’s no guarantee this will continue. There never is when you buy a stock. The way to reduce the risk is to hold for the long term, ride out market swings, and reinvest every dividend you receive to build your position.
Is there dividend income too?
After their strong recent run, Lloyds’ share price might slow. It’s more expensive than it was, trading at 15 times earnings. The yield’s fallen, as the shares rise. But the stock’s still forecast to yield 3.98% in 2026 and 4.7% next year. Hopefully, it should continue to climb after that.
Risks include the slowing UK economy, as rising interest rates could hit demand for mortgages and lead to a spike in bad debts. But over the long run, I think Lloyds’ shares are still well worth considering.
The easiest way to start is by drip feeding small amounts into the stock, until you get the hang of it. Then look for other income and growth opportunities on the FTSE 100. The State Pension’s great, but it isn’t enough on its own.
Should you invest £5,000 in Lloyds Banking 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 Lloyds Banking Group Plc made the list?
Harvey Jones owns shares in Lloyds Banking Group.
