On top of this, any withdrawals that an individual makes are safe from income tax. The trouble is, savers and investors who don’t use them to their full potential can scupper their hopes of retiring in comfort.

So what would be the best way to aim for a £1,000 monthly second income in later life? And how large would their ISA need to be?

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.

How much will I need?

It’s difficult to predict exactly how much we’ll need for retirement. Changes to the State Pension, a rising cost of living, and our evolving individual circumstances will all influence the precise sum.

Yet it’s important to have a particular figure to aim for. I think £12,000 a year — working out at £1,000 a month — is a good target to have in mind. When added to the State Pension, I think this could deliver a decent standard of living in retirement. To achieve this, a person would need an ISA of £300,000.

For that magic £1,000 income, someone would draw down 4% of their portfolio each year. At this rate, they’d have a regular passive income for about 30 years before the well ran dry.

But what’s the best way of reaching £300k?

There isn’t a one-size-fits-all answer to this question. The perfect way will depend on a tolerance of risk and broader investing style. How much there is to invest or save, and how long they have until retirement, are other considerations.

But a simple blend of history and mathematics shows us one thing: investing too much in low-yield assets could ruin chances of reaching that £300k ISA figure.

Lets say someone has £500 to invest each month. That’s a decent amount, I’m sure you’ll agree. But if put in a Cash ISA that delivers the average return we’ve seen over the past decade, they’d have just £175,057 after 25 years.

A top fund

Now let’s say they put their £500 into a Stocks and Shares ISA instead. Based on the 10-year average return here, they’d have a spectacular £624,103 after 25 years.

Investing in the stock market carries greater risk. Returns aren’t guaranteed, and the value of an investment can go up and down. But considering an investment trust or exchange-traded fund (ETF) like the SPDR FTSE UK All Share ETF (LSE:FTAL) can be an excellent way to reduce risk while still targeting life-changing returns.

This particular fund spreads investors’ cash over the UK’s largest-listed companies as well as some smaller-cap companies. It comprises the mature, dividend-paying stocks of the FTSE 100 alongside the (mostly) growth-focused shares on the FTSE 250.

By investing in dozens of companies (360 in this case), trusts and ETFs can provide exposure to many different sectors and regions, which helps provide a steady return over time. This SPDR product’s holdings are as varied as AstraZeneca, HSBC, Rolls-Royce and BP.

On the downside, this fund may provide worse returns than a Cash ISA during stock market downturns. But as we’ve seen, a diversified ETF like this in a Stocks and Shares ISA can significantly boost passive income in retirement.

The post How much would you need in an ISA to earn a £1,000 monthly passive income? appeared first on The Twelfth Magpie.

Right now, the price-to-earnings (P/E) ratios for the Footsie and the FTSE 250 are 16.2 times and 12.6 times, respectively. That’s a huge discount to the S&P 500, whose ratio is 23.8 times, and the Nikkei 225, which has a multiple of 19.3.

This suggests there could be significant scope for capital growth, though valuations aren’t the only reason I’m bullish today. Historical market trends also suggest UK shares could experience a substantial upswing.

FTSE 100 in focus

Let’s take the FTSE 100 as an example. According to data from Curvo, investors have often enjoyed their strongest returns in the months following a market correction.

The UK’s premier share index slumped 11.8% in September 2002, before bouncing 8.7% the following month. And in March 2020, it dropped 13.4% — its worst monthly performance on record — before soaring 12.7% the following November, its best-ever monthly rise.

Curvo‘s research also shows that market downturns in that time have frequently been followed by prolonged rallies. As the chart below shows, the FTSE 100 has delivered a positive return in 17 (71%) of the last 24 years.

The index has recovered from a global pandemic, banking sector collapse, war, AND a debt crisis in Europe to give investors a fat return. Indeed, someone who parked £10,000 in FTSE 100 shares in April 2000 would have seen the value of their investment swell to £34,169 by February just passed.

A UK stock fund

Of course past performance is not always a reliable guide to the future. But Curvo’s data certainly suggests now could be a good time to consider buying Footsie shares.

As I say, the cheapness of FTSE 100 and FTSE 250 companies provides room for UK shares to keep rebounding. And especially so as uncertainty over US economic and foreign policy supercharges investor interest in European shares.

Given the high-risk environment at the moment, purchasing an exchange-traded fund (ETF) could be worth considering to spread risk and target large returns. The SPDR FTSE UK All-Share ETF (LSE:FTAL) is one such fund on my own watchlist today.

This ETF offers great diversification, with 371 holdings spanning the London stock market. It also provides strong exposure to stable UK blue chips and mid-cap growth shares, with current weightings of:

• 81% in FTSE 100 stocks
• 16% in FTSE 250 shares

As you can see, this fund is also well diversified by sector, providing strength in case of underperformance in one or two areas. In addition, it holds a broad range of multinational companies (including HSBC, Unilever, and Rolls-Royce), meaning it also offers geographic diversification.

Since 2012, the FTSE 100 All-Share Index has delivered an average annual return of 7%. That’s solid rather than spectacular, but I think it could improve sharply from this point for the reasons I’ve described, giving a substantial boost to investors’ wealth.

The post Is now a golden opportunity to target huge riches with UK stocks? appeared first on The Twelfth Magpie.

If an investor was starting from scratch today, here’s a strategy they could use to build a £20k+ passive income from shares.

Eliminating tax

The first thing to do is open a tax-efficient Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP).

Within the first category, we’re able to buy shares, funds and trusts in either a Stocks and Shares ISA or Lifetime ISA. We can do the same with a SIPP, a product which also provides us with tax relief (the level of which depends on one’s personal income tax bracket). The Lifetime ISA also comes with a handy government top-up.

The amount we can invest differs enormously among these producys. For the SIPP, we can invest the equivalent of my annual earnings (up to a limit of £60,000). The amounts on the Lifetime ISA and Stocks and Shares ISA are £4k and £20k respectively, though these may change following March’s Spring Statement.

Big changes to the broader ISA regime are expected as the government seeks to boost investment in UK shares.

Over time, the ISA and SIPP often save investors tens of thousands of pounds in tax. It’s important though to carefully consider conditions on withdrawals and potential penalties before using one of these products.

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.

Choosing an ETF

With an ISA or SIPP set-up, we can look to build a diversified portfolio of assets. This can take time to achieve, but it’s an important step for wealth-building and capital preservation.

Investors today don’t have to spend a fortune or wait years to achieve a well-rounded portfolio though. This is thanks to rapid growth in the exchange-traded fund (ETF) market.

Like investment trusts, these products invest in a wide range of financial securities, giving investors excellent diversification from the get-go. Currently there are more than 1,700 listed on the London Stock Exchange, providing access to a broad spectum of asset classes, industries and regions.

What’s more, investors don’t have to pay stamp duty at 0.5% when purchasing an ETF. This tax is applicable on all stocks not listed on the Alternative Investment Market (AIM).

The SPDR FTSE UK All-Share ETF (LSE:FTAL) could be a great fund for investors for investors to consider today. With positions in 531 separate UK shares, it provides exposure to stable, blue-chip companies along with smaller businesses with high growth potential.

Some of the largest holdings here are FTSE 100 shares AstraZeneca, Shell, HSBC and Unilever.

Since its inception in 2012, the fund has delivered an average annual return of 7.2%. If this continues, a £400 monthly investment via a tax-efficient ISA or SIPP would, after 30 years, create a retirement fund of £507,690.

This could then provide an annual passive income of £20,308, based on an annual drawdown rate of 4%.

Returns could be bumpier during economic downturns when share prices tend to underperform. But I’d still expect it to deliver strong returns over the long haul.

In fact, with UK shares coming back into vogue, now could be a great time to consider investing in a fund like this.

The post Here’s how to target a £20k+ passive income in retirement with UK stocks! appeared first on The Twelfth Magpie.

It’s also due to the healthy amounts of tax relief individuals enjoy. This ranges from 20% for a basic-rate taxpayer, to 40% and 45% for higher- and additional-rate taxpayers respectively.

Here’s how an investor could use one of these tax-efficient products to build a £1k monthly passive income in retirement.

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.

Cash vs shares

As with the Individual Savings Account (ISA), SIPP users can choose to use their invested capital in a variety of ways.

As with a Cash ISA, they can choose to hold their money in cash. Or they can choose to invest in a selection of UK and overseas shares, funds, and trusts as they would in a Stocks and Shares ISA.

Holding cash can be a good idea to manage risk, whether that be in a SIPP, ISA, or other savings product. However, having too much in savings instead of investing capital elsewhere can have a significant impact on an individual’s retirement goals.

Targeting £1k a month

Today, the interest rate on cash holdings in a SIPP ranges between around 2.5% and 3.5%. That’s pretty low, and is likely to head southwards as the Bank of England (likely) continues cutting interest rates.

Let’s see how this could impact someone’s plans for retirement.

To have a monthly passive income of £1k in retirement, one will need to have a £300,000 pension pot. To reach this goal with cash savings paying, say, 3%, someone would need to contribute £515 a month (including tax relief) for 30 years.

This is far higher than if they decided to invest their money in a FTSE All-Share Index tracker fund instead. If they chose this route, they’d need to make a far lower monthly contribution of £288*.

Alternatively, someone who could invest that £515 a month in a fund instead of holding it in cash could reach that magic £300k marker in less than 23 years (22 years and six months, to be exact*).

* Figures are based on the FTSE All-Share Index’s 10-year average annualised return of 6.2%. They exclude broker fees and fund management costs.

Fund magic

Funds such as the SPDR FTSE UK All-Share ETF (LSE:FTAL) can offer the best of both worlds to investors. Why? They allow individuals to chase higher returns while simultaneously allowing them to spread risk across hundreds of different stocks.

The FTSE All-Share encompasses the FTSE 100, FTSE 250, and FTSE Small Cap Index. In total, it consists of around 600 different companies, comprising 98% of the entire market capitalisation of the London stock market.

These include blue-chip heavyweights like Lloyds, Legal & General, and Rolls-Royce, alongside fledgling growth shares. Thus they provide investors with the chance to enjoy big returns through large capital gains as well as abundant dividend income.

They may provide poorer returns than cash during economic downturns. But as you can see, funds like this can be a great way to build money for retirement over the long haul.

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I’d just transferred three legacy company pensions into my SIPP, with every penny sitting in cash. While I was getting some interest I was keen to put it to work as soon as I could, by investing in shares.

The vast majority of my portfolio is invested in individual stocks, but I wanted to take my time picking them. So I slapped £5,000 into the Vanguard FTSE UK All Share Index Unit Trust without a moment’s hesitation. I could just as easily bought another popular All-Share tracker, for example, SPDR FTSE All Share UCITS ETF (LSE: FTAL). It’s one of the longest established.

Passive income and growth

Tracker funds give me passive exposure to every share on the FTSE 100 and FTSE 250, plus a spread of small-caps too. Better still, they do this at minimal cost, with no upfront fee and low ongoing charges. The SPDR ETF, for example, charges 0.2%. Vanguard’s even cheaper, charging just 0.06%.

I can still remember the days when FTSE trackers charged 1% a year, or sometimes more. That may not sound that much but, over time, the impact’s huge.

Say I invested £5k in a tracker charging 0.06% a year and the index grew at an average of 8% a year, roughly the long-term return on the UK stock market. After 25 years, I’d have £33,770. Yet if the fund charged 1%, I’d have £27,137. That’s a staggering £6,633 less.

The charging difference becomes colossal for largest sums. Let’s say I invested £5,000 every year of that 25-year term. With the low-cost fund I’d have £424,882 after 25 years, the higher cost fund would give me £365,520. Those charges have cost me a scarcely believable £59,362.

Selling my winner

I bought my Vanguard tracker on 7 July last year and got one thing dead right. I love buying cheap shares when markets are down and the index was in the summer doldrums. My £5k investment is now worth £5,875.46, a total return of 17.51% in just over a year.

Over 12 months, the FTSE All-Share’s up 7.7%. I’m ahead for two reasons. First, I bought on a dip. Second, my total return included reinvested dividends. The current yield’s 3.7%.

I’m delighted with that return, but now I have an issue. The vast majority of my SIPP is invested in individual stocks, many of which have smashed the All-Share. Some have done worse, but they’re fewer in number and I’m backing them to recover with style.

This gives me the confidence to believe that I can beat the average FTSE return by individual stock-picking. So I may soon bank the profit on my tracker to raise funds to buy individual stocks. I’ll bid it a fond farewell. It’s done well for me.

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Has it delivered good returns over the long term? Let’s find out. Here’s a look at how much money I’d have today if I’d put £20k into a FTSE All-Share tracker fund 10 years ago.

Tracking the UK market

There are quite a few FTSE All-Share trackers on the market today. I’m going to analyse the performance of the SPDR FTSE All Share UCITS ETF (Acc) (LSE: FTAL).

The reason I’m going to look at this one is that it has been around longer than many others. Additionally, it’s an ‘accumulation’ ETF, meaning it reinvests all dividends (a large part of total returns).

Looking at its performance figures, it delivered a return of 5.7% a year for the 10 years to the end of June. So I calculate that had I invested £20k between the start of July 2014 and the end of June 2024, I’d now have about £35k. Note that I’m ignoring investment platform fees and trading costs here.

Near-6% returns

Is that good? Well, it’s not bad. A near-6% a year return’s much higher than I would have picked up from cash savings. Remember, until about mid-2022, savings accounts were paying a maximum interest rate of about 1%. So investing my money (instead of keeping it in cash savings) would have paid off.

That said, it’s not a brilliant return. I could have done a lot better with other investments.

For example:

• £20k in a global tracker fund such as the iShares Core MSCI World UCITS ETF would have turned into about £65k
• £20k in a S&P 500 tracker such as the iShares Core S&P 500 UCITS ETF would have grown into around £87k
• £20k in Apple shares would have shot up to around £275k
• £20k in Amazon shares would have ballooned into around £320k

Note that all these figures include currency movements.

Investing for strong returns

For me, the key takeaways here are that it can pay to:

• Take a global approach to investing
• Add some high-quality individual stocks to a portfolio in an effort to obtain higher long-term returns

Let’s say that instead of putting £20k into a FTSE All-Share tracker fund, I’d gone with this mix instead:

• £10k in a global tracker
• £7k in a FTSE All-Share tracker
• £1.5k in Apple shares
• £1.5k in Amazon shares

I calculate in this scenario, I’d now have just under £90k. I’d be very happy with that.

Of course, I’m cherry-picking stocks here. Not every one has performed like Apple or Amazon over the last decade. A lot of shares have produced disappointing returns.

And holding onto a winner for the long term isn’t easy. It can be very tempting to take profits when a stock doubles or triples.

But this calculation really shows the potential of investing in a mix of index funds and stocks. If you’re looking for the next Apple or Amazon, you’ve come to the right place.

The post If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now appeared first on The Twelfth Magpie.

• This ETF tracks nearly the entire UK stock market
• It’s skewed towards larger companies like those in the FTSE 100 
• If the UK economy continues to do well, this fund is likely to perform strongly

I’m a great believer in taking a long-term outlook to investing and am generally optimistic about the UK stock market. Though the flagship Footsie dominates the press, I’m now considering the FTSE All-Share. This consists of the FTSE 100, FTSE 250, and FTSE Small Cap. This is a much broader range of companies, including around 98% of the UK stock market. I think that a fund tracking this index could be one of the best exchange-traded funds (ETFs) for my portfolio in the long run.

There are a lot of funds in this sector, but I’m looking at SPDR FTSE All-Share ETF (LSE:FTAL). This is large in size with over £600m of assets, has a relatively low management charge of 0.20%, and good trading volume. Unusually for me, this is an accumulation fund rather than a dividend-paying one. As this investment is definitely a long-term play for me, it makes sense to take the accumulation option. This automatically invests dividends rather than distributing them. Since I would only re-invest the dividends anyway, this is the cheaper option, as it would cost me fees every time I re-invested them myself.

Still one of the best ETFs for tracking the UK market?

Over 12 months, this fund’s price has increased by around 16%, but year-to-date it has fallen by just over 1%. However, it’s the long-term performance I’m most interested in. Over five years, an increase of almost 25% has been notched up. Over 10 years, it’s closer to 100%.

Of course, in investing, nothing is certain and there are some drawbacks. Firstly, FTAL only tracks UK companies. Although many of the firms will derive some of their earnings from overseas, this fund can’t really be described as geographically diverse. Over the last 10 years, the US stock market has had a fantastic run which this ETF would have missed out on.

Second, by buying an index fund, I can only earn the returns of the index. I think that by picking individual stocks I might be able to outperform it. Third, the larger companies, like those in the FTSE 100, make up a bigger proportion of the ETF. This means those firms have more of an impact on the overall performance of the fund.

However, I’m still a fan. The larger firms are in sectors like banking and traditional energy which could have a great 2022 if interest rates and the oil price continues to rise. Also, it contains around 600 shares, which provides a huge amount of diversification across company size and sectors. Even if one or two of the companies fail, this shouldn’t have a big impact on the fund as a whole. Moreover, I remain bullish on the UK economy in general, which could mean more upside potential to the SPDR FTSE All-Share ETF.

On balance, I think this is one of the best ETFs for investing in UK shares and am happy to consider adding it to my holdings as part of a balanced portfolio.

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