But that fall hides the fact that some shares lost a lot more than others, some for good reasons. But often these days I’ve found that share prices can tend to overreact to any news.

That’s largely because markets are short-term-focused in nature — and that can create buying opportunities for a long-term investor like me.

Looking beyond today’s news

So last week, when I saw one of the highest-dividend shares of the FTSE 100, Rio Tinto (LSE:RIO), trade down over 10%, I knew I had to figure out if it was a short-term problem or long-term opportunity.

What was driving the change — and did I think it was reasonable? Was it perhaps finally a long-term buying opportunity?

Why did Rio fall more than the FTSE 100?

Rio Tinto may be a global mining giant but it has a fairly concentrated risk exposure, with about 60% of its earnings currently derived from iron ore.

Other FTSE 100 constituents have far less exposure to this particular market. So when iron ore prices fell sharply last week, mining shares including Rio Tinto, fell in line with the sell-off, while other shares were unaffected.

Digging into the story further reveals that Chinese demand is the key driver behind iron ore prices, as it’s the biggest buyer, accounting for about 70% of the market.

So markets were correctly reacting to China’s decreasing steel mill production figures, combined with concerns that its strict policies on Covid will continue to dampen demand.

Taking the long-term view on Rio Tinto

However, when I looked at the same information from a long-term perspective, that’s when I saw my opportunity.

I believe that eventually China will figure out a way to live with Covid, like the rest of the world is slowly doing. Plus, commodity markets tend to be highly cyclical — meaning that what goes up will come down and vice-versa.

I’d never buy an oil company when oil prices are at record highs. But buying a high-quality mining company when its core product falls in price — that makes sense to me as a long-term investment.

That’s especially the case for one with a great track record of rewarding its investors with a healthy dividend rate. At a yield of over 12% at time of writing, it’s the highest-paying dividend share in the FTSE 100.

A bumpy ride ahead?

Mining shares are known for being volatile. That means I’m not expecting a smooth ride while owning my new Rio Tinto shares.

For starters, I will not be surprised if that dividend is cut as revenues fall. But even if halved, that still beats the Footsie’s average of around 4%.

Plus, I like the strategy I can see unfolding at Rio with it developing new markets for its other products. That’s going to help decrease its reliance on iron ore prices and China over time and diversify my risk.

I may have to wait, of course. But over the long-term, I think it should prove a great addition to my diversified portfolio. That’s why I bought this FTSE 100 faller last week.

The post Why I snapped up this FTSE 100 faller last week appeared first on The Twelfth Magpie.

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• The only FTSE 100 stock I own right now

Michelle Freeman owns shares in Rio Tinto Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here, I’m going to highlight two FTSE 100 dividend stocks I see as attractive at present. I’d be happy to buy both as we begin September.

A top FTSE 100 dividend stock

One dividend stock that strikes me as a ‘buy’ right now is Smith & Nephew (LSE: SN). It’s a leading healthcare company specialising in orthopaedic implants and advanced wound management solutions. Its share price has pulled back recently and I think this has provided a great buying opportunity.

Smith & Nephew struggled during Covid-19 last year due to the fact that so many elective medical procedures had to be postponed. However, it’s now making a strong recovery. For the six-month period to 3 July, revenue was up 28%. For the full year, the group expects revenue growth of 10-13% (I think there’s a good chance it will exceed this). If revenues and profits continue to rebound, its share price should too.

Smith & Nephew isn’t the highest-yielding stock in the lead index. Currently, the prospective yield here is only around 1.8%. I still see appeal in that yield however. This is a company with an excellent long-term dividend growth track record and I expect its dividend payouts to continue rising over the long term as profits expand.

One risk to consider here is further Covid-19 setbacks. If the Delta variant results in a high level of hospitalisations, Smith & Nephew could be disrupted again.

But I’m comfortable with the risks. With the stock trading at 19 times next year’s earnings (versus 27 times for US rival Stryker), I see value here.

Attractive dividend yield

Another FTSE 100 dividend stock I like the look of right now is Unilever (LSE: ULVR). It’s a leading consumer goods giant that owns a wide range of brands such as Dove, Domestos, and Hellmann’s. Its share price has also pulled back recently (mainly due to concerns over higher input costs) and I see this as a good opportunity to build a position.

Unilever’s recent half-year results were quite solid, in my view. For the six months to 30 June, sales were up 5.4%. E-commerce sales jumped 50% while sales in the emerging markets were up 8.3%. These figures suggest to me the company’s heading in the right direction, despite the fact that inflationary pressures are impacting profits.

At present, Unilever shares offer a prospective dividend yield of around 3.7%. That yield’s very attractive, in my view. By contrast, the median forward-looking dividend yield across the FTSE 100 index is around 3.2%. It’s worth pointing out that a yield of 3.7% is quite high for Unilever.

The key risk here, in my view, is that inflation could continue to be a problem for the company. It’s worth noting that last week, analysts at JP Morgan downgraded the stock to ‘underweight’ on the back of inflation concerns.

The contrarian in me sees an opportunity here however. With the stock currently a little bit out of favour and trading on a forward-looking P/E ratio of under 19, I think it’s a good time to be buying.

The post 2 FTSE 100 dividend stocks to buy in September appeared first on The Twelfth Magpie.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Edward Sheldon owns shares of Smith & Nephew and Unilever. The Motley Fool UK has recommended Smith & Nephew and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This FTSE 100 company just added 84,000 new customers

One FTSE 100 company that looks attractive to me from an investment point of view today is Hargreaves Lansdown (LSE: HL). It operates the largest retail investment platform in the UK.

I’m bullish here for a couple of reasons. Firstly, over the last year or so, interest in investing and trading has skyrocketed. This has benefitted Hargreaves Lansdown. However, it doesn’t seem to be reflected in the company’s share price. Over the last 12 months, HL’s share price has actually fallen 6%.

Secondly, Britons need to save and invest more for retirement. As the UK’s largest investment platform, Hargreaves looks well-placed to benefit in the long run.

The business posted a strong set of half-year results recently which showed the company has momentum right now. For the six months ended 31 December, revenue was up 16% to £299.5m, while diluted earnings per share were up 10% to 32p.

Encouragingly, the company added 84,000 new customers over the period. That represents an increase of 68% on the number of customers it added in the same period in 2019. As a result of this performance, the company increased its dividend by 6%.

There are risks to the investment case, of course. The threat of competition is one. One rival in particular that looks to be capturing market share is Trading 212. The stock’s forward-looking price-to-earnings (P/E) ratio of 26 also adds some valuation risk.

Overall, however, I think the investment case is compelling. I’d buy this FTSE 100 share today.

A work-from-home play

Another FTSE 100 stock I like the look of right now is JD Sports Fashion (LSE: JD). It’s a leading sports fashion and footwear retailer that operates in the UK, Europe, the US, Asia, and Australia.

JD Sports has a number of things going for it right now. Firstly, it’s benefiting from the increased focus on health and exercise, which is boosting demand for trainers and athleisure wear. Secondly, it’s benefiting from the work-from-home trend, which is boosting demand for loungewear.

News from JD Sports has been encouraging recently. In a trading update posted on 11 January, the company said demand has remained robust throughout the second half of 2020 and that revenues for the 22-week period to 2 January were up 5% year-on-year. That’s pretty impressive when you consider many stores were closed at times during these periods.

Additionally, the group said it was confident profit before tax for the full year to 30 January would be “significantly ahead” of the current market expectations.

However, there are a couple of risks here I’m keeping a close eye on. One is the fact that companies like Nike are increasingly selling direct to consumers. This could impact JD in the future. The second is the group’s global expansion. These don’t always go to plan.

All things considered however, I think this FTSE 100 share offers an attractive risk/reward proposition. The forward-looking P/E ratio of 23 seems quite reasonable, to my mind. I’d be happy to buy this stock for my portfolio today.

The post 2 FTSE 100 shares to buy today appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Hargreaves Lansdown and JD Sports Fashion. The Motley Fool UK owns shares of and has recommended Nike. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

And, owning rental property has generated better returns for investors over the past 20 or 30 years than the stock market.

However, times are changing. Buy-to-let investing is no longer as attractive as it once was. Efforts by the government to remove the advantageous tax breaks that buy-to-let investors used to receive, coupled with stagnating home prices and restrictions on mortgage lending mean this market is unlikely to offer the same kind of returns over the next 10 years as it did over the past decade. 

And it is for these reasons, among others, that I believe the FTSE 100 should thrash buy to let as an investment over the next 20 years or so.

Stagnating growth

One of the reasons why investors have seen such impressive returns from the buy-to-let market is that UK house prices have taken off.

During the past decade, UK home prices are up 23% on average. In London, the boom in home prices has been even more explosive. Since 1995, the average property price is up between 450% and 650%.

The price of a detached property, for example, has surged from £258,000 in 1995 to £1.4m today. I think it’s highly unlikely this will be repeated over the next 20 years.

Another 450% increase in detached properties by 2039 would put the average price at £7.7m. If most families are struggling to buy a home at £1.4m today, £7.7m will be impossible. 

Put simply, I think property price growth will stagnate over the next few years, and as a result, the Footsie 100 should outperform buy-to-let property.

Broad diversification

The great thing about the FTSE 100 is that more than 70% of the index’s profits come from outside the UK.

So, as long as the global economy continues to expand, the index’s constituents should be able to continue to grow their bottom lines. Higher earnings justify a higher share price, which in turn justifies a higher FTSE 100.

On top of this, FTSE 100 constituents are known around the world for their dividend payments. At the time of writing the index supports a dividend yield of around 4.5%, roughly the same as you would get from a rental property based on the UK’s average rental yield.

The bottom line

So overall, while it looks as if the UK property market is running out of steam, the global economic expansion should continue to drive the earnings of FTSE 100 companies higher.

On that basis, I reckon the FTSE 100 should be able to thrash buy-to-let property going forward. As a bonus, you don’t have to do anything to profit from this growth. Unlike buy-to-let property, which requires babysitting, with the FTSE 100 all you need to do is buy a passive index tracker fund, sit back, and relax.

The post Here’s why the FTSE 100 should thrash buy-to-let investing appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s not that difficult

This is a massive shame, especially since the government gives us all a great incentive through the annual £20,000 Stocks and Shares ISA allowance, which allows you to take all your returns free of income tax and capital gains tax.

Many people simply don’t know where to start. That’s understandable, as there are hundreds of different companies listed on the London Stock Exchange, and buying individual stocks is simply too risky for many.

So let’s keep things simple.

Choose your platform

Your first step is to open an ISA account with one of the major UK trading platforms, here’s a list of some of the best. You’ll need proof of ID and either a current account or debit card, and can start trading within a few minutes.

That still leaves the other problem. What do you buy? For beginners, I would recommend a passive investment fund that tracks the fortunes of the UK stock market.

The FTSE 100 index of top blue-chip stocks is by far the best known index as it gives you exposure to the UK’s largest companies. Like any market, it will be volatile in the short run, rising and falling as investors rush to buy or sell shares.

Some companies will do well, some will do badly. One or two might even go bust. By investing in a spread of stocks, you have a massive cushion if one fails.

Patience is the ultimate virtue

Never invest in the stock market for less than five years and ideally you should leave your money for 10, 20, 30, 40 years or more, the longer the better. That way you don’t have to worry about short-term volatility, which always passes if you give it enough time.

The easiest way to start is to invest in a dirt cheap FTSE 100 tracker. Exchange traded funds (ETFs) are hugely popular because you can buy and sell them in seconds like any stock, and the charges are as low as can be.

Core holdings

For example, the iShares Core FTSE 100 UCITS ETF has no upfront charge and an annual fee of just 0.07% a year. The HSBC FTSE 100 Index tracker runs it close with charges of 0.18% a year.

You could widen the net by also buying the iShares FTSE 250 UCITS ETF, which invests in the next 250 largest UK companies, which often grow faster than large-caps. It charges 0.4%. The SPDR FTSE UK All-Share UCITS ETF widens the net further by investing in around 650 listed UK companies, charging 0.20%.

Make sure you invest all your dividends back into the funds for growth. Over the last 10 years, the average annual return from the FTSE 100 with dividends reinvested was 8.3%, but if you took the dividends instead, that falls to 4.3%.

Top up your fund whenever you can, otherwise just sit back and leave your money to grow, ignoring short-term stock market upheavals. What could be simpler than that?

The post Think investing is too complicated? A FTSE 100 tracker is simplicity itself appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Trouble in store

The Sainsbury’s share price has struggled for years and fell another 42% over the past 12 months against a relatively minor drop of 8% across the FTSE 100. The £4.35bn group has been hit by wider economic and political uncertainty but has also suffered its own disappointments, such as the failed £7.3bn tie-up with Asda, and a 29% drop in pre-tax profit to £219m, announced in May.

Perhaps the share price fell so low that it had to rebound? It is more likely that investors were responding to reports that the company is working on a succession plan to replace CEO Mike Coupe, as it looks to move on from its Asda disappointment. That failure does call his judgement into question, as the Competition & Markets Authority was always likely to block the merger due to the impact on choice and prices, and Coupe wasted a lot of time and money finding out for sure.

If Couple does go (in May he said he would stay), his legacy will be a reasonably successful £1.4bn acquisition of Argos, but Sainsbury’s remains a business in retreat and its stores and brand image seem in urgent need of an overhaul to me.

This could be an opportunity for contrarians, so is now the time to fill your trolley?

Tough times

While Brexit has had a silver lining for many FTSE 100 stocks, it has clouded the supermarket sector, which enjoys little benefit from the weaker pound. As a domestic-facing business, Sainsbury’s has to deal with rising import costs and cash-strapped consumers instead.

In a rare piece of good news, Sainsbury’s saw its market share climb slightly over the 12 weeks to 11 August, from 15.3% to 15.4%, according to Kantar Worldpanel, while Tesco and Morrisons each saw their market share dip by 20 basis points, to 27% and 10.1% respectively.

However, Sainsbury’s still saw its sales drop 0.6%, and although this was smaller than Tesco (1.6%) and Morrisons (2.7%), the fact that Aldi’s sales grew 6.6% and Lidl’s by 7.2% shows the scale of the continuing challenge.

Discounted price

Sainsbury’s trades at a discounted price of just 9.8 times forward earnings, way below the P/E of 17.33 across the index as a whole, while it also has a lowly price-to-revenue ratio of 0.2. It is a tempting income stock, with a forecast yield of 5.4%, covered 1.9 times, against 4.72% across the FTSE 100.

Its customers could be feeling slightly better off, with wages up 3.9% in the year to June, the highest for 11 years, while the unemployment rate is the lowest since 1971. The group may also recover some of its mojo, as Asda scars heal.

So now could be a buying opportunity, but this wouldn’t be top of my list of FTSE 100 buys. There are other bargain dividend stocks I’d consider first.

The post The dirt cheap Sainsbury’s share price is up 12% in a week. Can it beat the FTSE 100 now? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Show no fear

However, I would recommend investors put on a united front and treat this as an opportunity to buy top FTSE 100 stocks at bargain prices, whatever happens on Halloween. While you’re at it, buy some for your children too.

In some respects, Brexit has been good for UK blue-chips. When the pound crashed in the wake of June 2016’s shock referendum result, the FTSE 100 rose because constituent members generate more than three quarters of their revenues outside the UK. These were suddenly worth more when converted back into sterling. Every Brexit cloud has a silver lining.

Fighting shy

Despite that, UK stocks have trailed many global markets, notably the rampant US S&P 500. Private investors have been flooding out of UK equity funds, with outflows totalling £11.5bn between June 2016 and this February, according to the Investment Association. May saw the first monthly inflows for two years, as investors cheered up and diverted £532m into the unloved asset class.

International investors continue to shun the UK as they await further clarity on our departure from the EU. But they are watching closely. If we do get some kind of last-minute deal there will be a flood of relief – and a flood of overseas money because the truth is, the UK economy isn’t in such a bad shape. There are some incredible dividend stocks outs there, like this 12%+ high yielder.

Yes, GDP did shrink by 0.2% in the three months to 30 June, the first quarterly drop in six-and-a-half years. However, this partly reflected stockpiling in the previous quarter, while we aren’t the only European economy slowing – Germany is close to recession. UK unemployment is at a 45-year low of 3.8%, while wages are now rising at 3.6% a year, the fastest rate since 2008, and inflation was bang on the Bank of England’s 2% target in the year to June.

Fortune could favour the brave again

You can prove anything with figures, and a disastrous no-deal departure could wreck those positive numbers. If Project Fear comes true and the FTSE 100 does crumble, that could be a great chance for long-term investors to get greedy, and load up on top dividend and growth stocks at bargain prices. The opportunity may not last long, though, as sterling could act as a shock absorber yet again.

Interesting times

There’s a chance there will be no meltdown, and all those foreign lorries and medicines will continue to make it through. If that’s the case, people get ready. There may just be a wall of international money coming our way. The recent acquisition of Greene King by one of Asia’s richest families may only be the start.

The truth is nobody knows how markets will react on 31 October. All I know is that the next few weeks could be fraught, and that’s generally a good time to buy shares, especially if you plan to hold for the long run. As you should. One day, even Brexit will seem like just a blip.

The post No-deal Brexit could be the FTSE 100 buying opportunity of the year! appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Always on track

There’s plenty of evidence to suggest that trackers are the way to do it. Research shows time and again that three quarters of active fund managers are unable to beat the index, despite their huge resources, and private investors also struggle. Trackers guarantee you’ll never underperform, although you won’t outperform either.

It’s a lot easier to take out an exchange traded fund (ETF) such as the iShares Core FTSE 100, or a dirt-cheap unit trust tracker such as HSBC FTSE All-Share, and passively watch them deliver the rewards of stock market investment.

Single stocks

You can hold them for years, decades, quietly reinvesting your dividends for growth, virtually ignoring  them until retirement looms. You will also pay minimal charges, with both these two funds charging a meagre 0.07% a year. That way you get to keep more of the growth and income yourself.

By and large, that’s what I do. However, I think you have to inject a little bit of risk into your portfolio as well by picking out a few stocks that you admire. Index trackers give you ballast, but the individual company equities can help you build a real head of steam.

Full-steam ahead

Which is exactly what FTSE 100 fixture Lloyds Banking Group (LSE: LLOY) has been doing lately. Becalmed for years, its share price is now going at rate of knots, up 17% in the last three months. What a pity I didn’t tell you it was a screaming buy three months ago. Actually, I did!

On 27 January, I wrote: Hurry! The Lloyds share price opportunity is closing fast. Admittedly, I had been claiming the same thing for the previous year, to little avail. Tipping a stock to perform is the easy part, the tricky bit is saying when.

Screamer 

Lloyds looked an unmissable bargain in January, trading at a dirt-cheap valuation of just 7.7 times forward earnings and with a forecast yield of 6.1%. Its share price was held back by a bumpy 2018 and fears over the impact of Brexit on the UK economy

We’re still worrying about both those nasties, but sentiment on the first has undoubtedly improved, with stock markets around the world roaring on hopes that the US Federal Reserve will pull back on its recent tightening.

Safe as houses

Lloyds got a further boost in February after posting a 24% rise in full-year after-tax profits to £4.4bn, with revenue up 2% to £17.8bn. Alongside improving margins, that was enough to encourage Roland Head to say that Lloyds is probably the safest buy in British banking right now.

This £47bn giant remains incredibly cheap, trading at just eight times forward earnings, with a forecast yield of 5.2%, covered 2.2 times by earnings. Lloyds still looks a long-term buy-and-hold to me, despite Brexit clouds. As does the FTSE 100.

The post Here’s why I’d buy the Lloyds share price over the FTSE 100 appeared first on The Twelfth Magpie.

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Harvey Jones holds iShares Core FTSE 100 but has no position in any other shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Segro growth slows

It is down 1.5% today on publication of its trading update covering 1 January to 16 April, which showed a slowdown in new headline rent growth and secured new pre-lets, although chief executive David Sleath said the business continued to perform well during its first quarter.

New headline rents totalled £21.2m, down from £27.3m in the first quarter of 2018, while secured new pre-lets slipped from £23.3m to £11.1m over the same period (although they remain well above the three-year quarterly average run rate of £7m).

Lease it out

Sleath hailed “particularly strong” rent roll growth at £6m, up from £500,000, boosted by the re-gearing of a number of leases in its Heathrow portfolio. The group now has 44 projects under construction, which are expected to generate £57m of annualised rent and are already 72% leased.

Segro raised £451m of equity in February to add to its future development pipeline, while it has a number of additional pre-let development projects at advanced stages of negotiation. Sleath said the group’s high-quality portfolio of assets in prime locations across the UK and continental Europe should “continue to benefit from the structural drivers of e-commerce and urbanisation,” despite macroeconomic and political risks.

Healthy pipeline

With vacancy rates falling to 4.4% (against 5.2% in December), lettings of both existing and recently completed speculative space are strong. Segro completed 100,000 square metres of developments in the quarter, capable of generating £3.8m of headline rent when fully let, with £2.8m already secured.

So why was the market response downbeat? I reckon it’s partly down to the high valuation, with the stock trading at 28.4 times earnings. Paul Summers identified the same problem in February. Also, the yield disappoints at 2.9%, covered 1.2 times, although management policy is progressive. Segro is a good business, but it doesn’t look a great investment at today’s price.

That’s the spirit

That said, a toppy valuation and low yield does not necessarily make a stock a no-go area. You only have to look at FTSE 100 listed spirits giant Diageo (LSE: DGE) to counter that. Its P/E is routinely in the mid-20s, while its income rarely rises above 2.5%. It is the same story today, as the stock trades on a forecast valuation of 24.5 times earnings while the forecast yield is just 2.2%, with cover of 1.9.

You may have to be patient if you want a better entry point. Diageo is expensive because investors like it, and it usually lives up to expectations. 

After a spell in the doldrums, Diageo is up 60% over the past three years. It has also beaten the FTSE 100 with ease and Peter Stephens reckons it will continue to do so, citing strong growth prospects in China and India. EPS are expected to rise 9% this financial year and 7% next year, which is more than steady, and offers security against wider stock market jitters. This is exactly the type of stock you should be looking to buy amid a wider market correction.

The post The Diageo share price and this growth monster are thrashing the FTSE 100 appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cashing out

Cash ISAs remain hugely popular, far more so than Stocks and Shares ISAs, and the little-known Innovative Finance Isa (IFISA). They are hard to love, though, with the average easy access Cash ISA paying just 0.88%, according to Savings Champion. 

You can get more if you are willing to tie your money up, for example, Shawbrook Bank pays 2.3% on £1 and above. That is hardly earth shattering, plus you have to lock your money away for five years.

No platform

The IFISA offers higher rates of interest because instead of putting your money in the bank you are lending your cash to small and growing businesses via a peer-to-peer (P2P) platform. Interest rates average 5.82%, according to reviewer 4thWay, but with no capital protection under the Financial Services Compensation Scheme. If your P2P platform goes bust, you could lose all of your money.

You don’t need me to tell you that you could also lose money by investing in stocks and shares, particularly individual stocks. Yet I put all of my long-term savings into stocks and funds, and I have an aversion to losing money.

With shares there is so much you can do to mitigate risk, for example, spreading your portfolio between a range of different stocks, or building a broadly diversified spread of investment trusts with terrific long-term track records.

You could season this with a sprinkling of low-cost index tracking exchange traded funds covering indices such as the FTSE 100, which currently offers an inflation-busting yield of 4.5% a year.

Take your time

Then you should look to invest for the long term, at least five years but in practice 10, 20 or 30 years, because that way you have nothing to fear from short-term volatility. In fact, you should treat any stock market dip as a buying opportunity, and pick up your favourite shares on the cheap. We have had one or two such opportunities recently.

You are effectively losing money by leaving it in cash, as inflation will erode its value in real terms. The CPI may have fallen to 1.8%, but that’s still higher than even the best easy access Cash ISA, which pays around 1.5%. Despite this, Britain’s savers are currently rushing to put their money into Cash ISAs, depositing a record £1.1bn in January, a huge increase on £275m last year, Bank of England figures show.

Get to work

You should always have some money in cash, but your long-term wealth will work harder in stocks and shares. The figures back me up here. ISAs were launched 20 years ago and fund manager Fidelity calculates that if you had put your full balance in cash every year you would have paid in a total of £141,520 which would have grown to £146,070.

However, if you had invested exactly the same amount of money into the FTSE All Share index, you would have £221,566. That’s a difference of more than £75,000. That’s why I say forget the Cash ISA and focus on stocks and shares.

The post Ignore the Cash ISA and Innovative Finance ISA! I’m buying the FTSE 100’s 4.5% yield appeared first on The Twelfth Magpie.

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Harvey Jones holds iShares FTSE 100, HSBC FTSE 100 Index and HSBC FTSE All-Share Index but has no other position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.