To demonstrate, I want to look at how much someone could have by retirement by investing £700 a month in one of these DIY pensions. Let’s get started. 

Tax relief

A SIPP is a type of tax-efficient retirement investment account available to UK residents. The way it works is similar to a Stocks and Shares ISA, but a key difference is that funds cannot be accessed until at least age 55 (rising to 57 in 2028). 

Another difference is that there is tax relief on contributions. In other words, the UK government boosts pension savings by adding 20% tax relief for basic-rate taxpayers. Higher-rate (40%) and additional-rate (45%) taxpayers can claim even more relief through their self-assessment tax return. 

So, for someone investing £700 per month into a SIPP, the tax relief would add an extra £175, bringing the total investment to £875. 

However, it’s worth pointing out that only 25% of the pension pot can eventually be withdrawn tax-free. The remainder is then taxed as income upon withdrawal.

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.

£663k!

Putting this together then, a 45-year-old basic-rate taxpayer putting £700 into their SIPP every month (£10,500 per year thanks to tax relief) would have around £663,000 by age 68. 

This assumes an 8% return (after fees) over the long run. While not guaranteed, I think this rate of return is achievable for most people willing to carefully research their investments and build a diversified portfolio. 

It’s certainly not a bad result for someone starting at 45 and putting away £700 a month. Undoubtedly, it would be a nice supplementary boost in retirement.

Global index

SIPP accounts offer a wide range of investing options, including stocks, bonds, investment trusts, and exchange-traded funds (ETFs).

For many investors, a global index fund like the iShares Core MSCI World UCITS ETF (LSE: SWDA) will form a core part of their portfolio. This fund offers broad exposure to a wide range of global companies (1,355 holdings) within 23 developed countries.

Over the past decade, it has delivered an annualised total return of 9.9%. While it’s not assured to deliver that in future, I’m optimistic it can still return at least 8% over the long term.

Now, it’s worth mentioning that the US market has dominated returns and now makes up around 71% of the ETF’s total. So if the American economy enters a recession due to President Trump’s tariffs, the fund’s return could be lower than expected over the next few years. This is a key risk here. 

Longer term however, I think it’s safe to assume that the tech revolution will only get stronger. Indeed, it could even accelerate dramatically as emerging fields like AI and (potentially) quantum computing take hold.

Such innovation should drive global economic expansion. A global index fund is the simplest way to capture this growth, in my opinion.

Of course, progress is not linear and there will be major volatility along the way. But with £875 to deploy each month, an investor will be picking up bargains during downturns, likely setting them up for strong future returns.

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In this article, I’ll look at how much passive income a 30-year-old could potentially earn in retirement if they were to invest £700 a month. 

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.

Sitting in Cash

First, let’s see how much someone would have by the age of 68 saving £700 a month in a Cash ISA. Starting from scratch at 30, they would end up with £475,686.

Now, I should say we have no idea what the average return on cash will be over the next three to four decades. After the 2008 financial crisis, interest rates fell to near-0%. More recently, they’ve been above 4%. For simplicity’s sake, I applied a rate of 2% above, which would translate into £9,513 a year in income at retirement.

Also, there has been widespread reports that the government is planning to reduce the annual cash ISA allowance (possibly down to £4,000 from £20,000). That should presumably make a Stocks and Shares ISA relatively more attractive.

Investing in stocks

According to Moneyfacts, the average rate of return for a Stocks and Shares ISA over the past decade is 9.6%. That chimes with the long-term average of global stocks, which is about 10%.

Of course, the return for an individual could be far more or less than that, depending on how well their investments do. But I think a great foundational investment to consider for a portfolio is the iShares Core MSCI World UCITS ETF (LSE: SWDA). This exchange-traded fund (ETF) offers investors broad exposure to around 1,395 global companies within 23 developed countries.

Over the past 10 years, the total return (in US dollar terms) has been 10.6%.

The top five holdings today are Apple, Nvidia, Microsoft, Amazon, and Facebook owner Meta Platforms. This reflects the fact that these are the largest companies in the world.

However, while around 27% of an S&P 500 index tracker fund is invested in these five tech giants, that falls to less than 19% for the iShares Core MSCI World ETF. Therefore, this option gives better portfolio diversification.

Outside of the big tech staples, investors would also get exposure to blue-chips like AstraZeneca and HSBC, as well as fast-growing software firms like Palantir.

One risk to be aware of here is that the IT sector makes up 25% of the ETF. If this area of the stock market were to sell off, the ETF’s performance would suffer. And there’s a risk that AI spending could slow, impacting the earnings of large holdings like Nvidia.

How much passive income then?

If a Stocks and Shares ISA returns 10% over time, it ends up being worth far more than £475k. In fact, the total value would be more than six times higher at just under £3.2m (excluding platform fees).

It’s truly amazing that investing the equivalent of £161 a week can lead to a multimillion-pound ISA!

So, how much passive income could a portfolio this size be generating each year? Roughly £192,000, assuming a 6% yield.

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Here, I’m going to look at how much money a 45-year-old could potentially build up by retirement if they were to put £700 a month into this type of ISA. Let’s dive in.

Attractive returns

There’s no guaranteed return on offer with the Stocks and Shares ISA. This is due to the fact that it’s an ‘investment vehicle’ and not an investment.

With a proper investment strategy however, it’s not unreasonable to expect a return of 8% a year (after fees) over the long term. And with that kind of return, money can grow quickly due to the power of compounding (earning a return on past returns).

Invest £700 a month starting at age 45 and earn an 8% average annual return on the money, and you’d have around £385,000 by age 65, or £515,000 by age 68. That could be a nice little retirement bonus to sit alongside a work pension or Self-Invested Personal Pension (SIPP).

It’s worth pointing out that all gains generated inside a Stocks and Shares ISA are tax-free. So the investor wouldn’t have to pay a penny of tax on this money – a great result.

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.

Investing properly

Now, I mentioned an investment strategy above and this is crucial if one wants to achieve attractive returns within a Stocks and Shares ISA. Invest without a plan and/or in the wrong assets, and long-term returns could be well be below 8% year (they could even be negative).

The key to achieve strong long-term returns is to build a diversified investment portfolio that has exposure to many different businesses. By doing this, you can mitigate the risk of any single company’s failure significantly impacting your returns while simultaneously increasing the likelihood of capturing gains from the market.

The good news is that building a diversified portfolio is super easy today. With index funds, you can literally do it in minutes. These funds typically offer exposure to thousands of stocks. So they offer instant portfolio diversification.

A good example of an index fund is the iShares Core MSCI World UCITS ETF (LSE: SWDA). This is a global investment fund that offers exposure to around 1,400 stocks.

With this product, an investor gets exposure to all the big names in the stock market such as Apple, Amazon, and Nvidia. However, they also get exposure to smaller companies such as CrowdStrike, London Stock Exchange Group, and Sage.

I’ll point out that in recent years this ETF has returned far more than 8% a year. Over the 10-year period to the end of January, for example, it returned 174% (in US dollar terms) which is about 10.6% a year.

That said, past performance is no indicator of future returns. And if the world was to experience an economic slowdown, or the Technology sector (which has a large weighting in the ETF) experienced some weakness, this fund could underperform.

I believe it’s a good product to consider though. In my view, this ETF could be an excellent foundational investment for a Stocks and Shares ISA.

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Interested to know how these indexes performed in 2024? Here’s a look at their total returns for the year (gains plus dividends).

The figures

Earlier this week, FTSE Russell published its factsheet for the FTSE UK series. And the performance figures were interesting.

For 2024, the FTSE 100 delivered a total return of 9.7%. This was its best performance since 2021 when the large-cap index returned 18.4%.

As for the mid-cap FTSE 250, it delivered a lower return of 8.1%. However, this was also its best performance since 2021 when it returned 16.9%.

Some observations

Looking at these figures, I have several thoughts.

First, the indexes produced respectable performances in 2024. Over the long term, the stock market tends to return around 7%-10% a year on average. Last year, both indexes delivered that kind of return.

That said, these figures are a little disappointing relative to the percentages other major stock market indexes managed. Over in the US, the S&P 500 delivered 25% in total. Meanwhile, for the Nasdaq 100 it was 25.9% (both of these are calculated in dollar terms). This shows the importance of diversifying globally when investing in stocks. By taking a global approach, a British investor could have potentially generated more wealth.

Second, dividends played a large role in these figures. I calculate that in price terms, the FTSE 100 rose 5.7% for the year while the FTSE 250 climbed 4.7%, so dividends boosted overall performance significantly.

Another takeaway is that the FTSE 250 underperformed the FTSE 100 by a decent margin. Clearly, the domestic focus of the FTSE 250 hurt its performance. While FTSE 100 companies tend to have more global revenues, FTSE 250 companies are often more focused on the UK. Again, this highlights the importance of global diversification.

Building a global portfolio

It’s worth pointing out that it’s very easy to build a global portfolio today.

One simple option to consider is a global tracker fund such as the iShares Core MSCI World UCITS ETF (LSE: SWDA). With this exchange-traded fund (ETF), one gets exposure to about 1,400 stocks from a range of countries including the US, the UK, Japan, Australia, France, and Germany.

Among these stocks are names such as Apple, Microsoft, and Amazon. In other words, it offers access to world-class businesses.

In terms of performance, this ETF returned 18.7% last year (in dollar terms), which is excellent. Over the five-year period to the end of 2024, it delivered a return of 11.2% a year. These figures don’t include trading fees and platform charges though. And as always, past performance isn’t an indicator of future returns.

It’s worth pointing out that there are some risks to consider with a product like this. One is that it has a lot of exposure to the US market (about 74% currently). Another is that it trades in US dollars. So GBP/USD fluctuations can have an impact on returns for UK investors.

I think this ETF could be a great foundation to consider for a portfolio though. I like the idea of having this as a core holding and then buying some high-quality individual stocks such as Nvidia or Uber to try and boost long-term returns.

The post Here are the official 2024 returns for the FTSE 100 and FTSE 250 (including dividends) appeared first on The Twelfth Magpie.

But could this ISA ever be scrapped in the future? Potentially, I believe. I wouldn’t be surprised to see it ditched at some point. Because the way I see it, scrapping it could give both the wealth of the nation and the UK stock market a major boost in the long run. Of course, nobody has suggested it will happen and that’s just my opinion.

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.

Let’s get Britain investing

In my view, scrapping the Cash ISA would have multiple benefits. First, it would most likely push a lot more Britons into Stocks and Shares ISAs – which are far more powerful investment vehicles. This could encourage people to learn more about investing in stocks and funds.

In the long run, investing in these kinds of assets is a much more effective way to build wealth than simply saving. Unfortunately though, a lot of people across Britain today still don’t understand how investing works or the benefits of it (partly because their money is in — albeit safe — Cash ISAs).

More wealth for everyone

Secondly, it could result in significantly more wealth for Britons in the long run. Imagine if UK savers with time on their side put their capital into a global tracker fund such as the iShares Core MSCI World UCITS ETF (LSE: SWDA) within a Stocks and Shares ISA and held it there for 10 years.

Over the last decade, this ETF has generated returns of 9.7% per year ignoring currency movements (a strengthening pound can weaken returns). That’s far higher than Cash ISAs have paid out (for most of the last decade Cash ISAs were paying 1%).

Past returns aren’t an indicator of future performance, of course (the stock market can be volatile at times and this ETF has experienced plenty of turbulence over the last decade). But let’s say that this product – which provides exposure to amazing companies such as Apple, Amazon, and Nvidia – was able to deliver the same kind of return over the next decade.

In this scenario, those with money allocated to it would most likely end up far wealthier than if they had kept their money in cash savings. Invest £20,000 and obtain a return of 9.7% per year and it would result in over £50,000 after a decade. Keep £20,000 in a Cash ISA offering 4%, however, and yet would end in less than £30,000 after 10 years. So, scrapping the product could potentially give the wealth of the nation a major boost.

Support for UK shares

Finally, it could even give the UK stock market – which has underperformed global markets over the last decade – some support. Let’s say a third of that £290bn went into UK shares. This could give the market a real shot in the arm. Today, the FTSE 250 index (home to many domestically-focused businesses) only has a market cap of £330bn. If nearly £100bn was to come into this index, it could shoot up.

Long-term benefits

Of course, scrapping the Cash ISA wouldn’t suit everybody. There are plenty of people with lower risk profiles who like to keep their money in cash savings products (you can keep cash in a Stocks and Shares ISA).

But I believe that people would adapt to the situation over time if it was scrapped. And in the long run, I think the benefits would far outweigh the disadvantages.

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Of course, being able to invest £20k in an ISA means the challenge is working out where and how to invest. Considering this, here’s how I’d personally invest the money today.

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.

Investing for growth

Investing in stocks for long-term growth (eg for retirement) like I am, there are three main ways they can invest today. They can put their money into:

• Passive investment funds that track market indexes (also called ‘tracker funds’ or ‘index funds’)
• Active investment funds that are managed by professional fund managers
• Individual stocks like Apple, BP, and HSBC

Now, there’s a growing school of thought that most people should simply invest in passive funds these days. And I can see the logic here. These funds are simple, low cost, and efficient. And by taking a global approach, the returns can be excellent.

Take a look at the iShares Core MSCI World UCITS ETF (LSE: SWDA) for example. This is a low-cost, global tracker fund that provides exposure to about 1,400 companies.

For the 10-year period to the end of July, this product delivered a return of 9.6% a year (excluding trading fees and commissions and platform fees). That’s an excellent return over the long term. Especially when you consider how simple this fund is. With this product, investors could have obtained high returns without spending a lot of time on investment research or portfolio construction.

As for how it generated such good returns, a lot comes down to the fact that the top holdings (with the biggest weights) in global tracker funds these days are mega-cap technology companies.

I’m talking about companies such as Apple, Microsoft, and Alphabet (Google). These kinds of companies have been doing very well as the world becomes more digital. And their rising share prices have boosted global tracker funds.

Given the benefits of passive funds, I think these products have a place in a lot of investor portfolios today. With almost no effort, potentially attractive returns can be generated.

Aiming for higher returns

Tracker funds like the iShares Core MSCI World UCITS ETF aren’t perfect though. If we were to see a multi-year period where global stock market indexes didn’t rise much (this has happened in the past), these funds could deliver underwhelming returns.

This is where active funds and individual stocks come in. With these investments, one can add further diversification to their portfolios and improve their chances of generating long-term strong returns.

Active funds and stocks can also be used to capitalise on specific opportunities in an effort to beat the market. For example, if I wanted more portfolio exposure to artificial intelligence (AI), I could invest in an AI fund or buy shares in AI chip designer Nvidia (I’ve done both as I’m bullish on the theme).

My approach

So if I was investing my full £20,000 ISA allowance today, I’d include all three types of investments.

I’d have passive funds as core holdings. And then I’d have some active funds and individual stocks for diversification and extra growth.

This multi-pronged strategy should give me a good chance of generating market-beating returns over the long term.

The post How I’d invest a £20,000 Stocks and Shares ISA allowance today appeared first on The Twelfth Magpie.

Here, I’m going to outline how I’d aim to build a £250k ISA from nothing, starting today. Let’s dive in.

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.

Regular savings

So let’s say I already had a Stocks and Shares ISA account open. The first thing I’d do is start a regular savings plan. I’d prioritise ISA savings over non-essential expenses and aim to contribute as much as possible into my account.

Note that with this type of ISA, it’s possible to contribute up to £20,000 a year. That’s a very generous allowance and not many people can actually afford to put that much money away into an ISA every year.

Investing my money

Now, when it comes to building long-term wealth, saving money is only part of the equation. The most important part is investing (putting money into assets that will generate higher returns than savings accounts over the long run).

So the next step would be to get my money working for me by investing it. And there are many different strategies I could pursue here.

I could just put my money into index funds that aim to track a broad stock market index. One example is the iShares Core MSCI World UCITS ETF USD (Acc) (LSE: SWDA). This is an exchange-traded fund (ETF) that tracks the MSCI World index (a well-known global stock market index).

The beauty of this product is that it provides access to over 1,400 stocks (including big names such as Apple, Nvidia, and Tesla). Another advantage is that fees are very low at just 0.2% a year.

It’s worth noting that this product has a lot of exposure to the US stock market and to the Technology sector. That’s not necessarily a bad thing given the direction the world’s heading in. But it does add some risk.

It should do well over the long term though. Over the last 10 years, it’s generated very strong returns (although past performance is no indicator of future returns).

Aiming for high returns

Alternatively, I could go with actively-managed investment funds that aim to beat stock market indexes. These often get a bad rap, but there are some good ones out there. Fundsmith Equity, for example, has delivered brilliant returns since its inception in 2010. Its focus is on high-quality stocks.

A third option would be to invest in individual stocks such as Apple and Amazon. This strategy would be a little more risky. But it could supercharge my returns if I picked the right stocks. Amazon shares, for example, have risen about 1,000% over the last 10 years.

I’ll point out that these strategies aren’t mutually exclusive. I’d actually pursue all three. That way, I could get a combination of:

• Low fees
• Professional portfolio management
• Potential for high returns from individual stocks

The path to £250k

How long would it take me to build up £250k with this approach? Well, it would depend on how much I was contributing to my account and the returns I was able to achieve.

But let’s say I put £10k into my ISA every year and was able to achieve a return of 9% a year over the long run.

In this scenario, I’d get to £250k in around 14 years.

The post How to try and build a £250k Stocks and Shares ISA from scratch, starting in 2024 appeared first on The Twelfth Magpie.

It could be an achievable goal. Here’s a look at how one could aim at getting there.

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.

Prioritising ISA savings

To my mind, there are two crucial things to consider when aiming to build a £1m ISA. The first is make regular contributions into their account.

Now this doesn’t necessarily mean maxing out the £20k annual allowance every year. Across the UK, only around 800,000 people can afford to do this on a regular basis.

What it does mean however, is prioritising ISA savings (ie paying into an ISA on payday).

Whether it’s £3k invested a year or £10k, it all adds up. Especially if the money’s working hard for you. Though, of course, investing puts your capital at risk and returns are never guaranteed.

Developing a proper investing strategy

This brings me to the next step, which is putting a proper investment strategy in place. This is the really important part of the process.

By investing properly, and taking advantage of the power of compounding, the potential’s there to hit that £1m mark possibly sooner.

Now there are many different strategies investors can pursue within a Stocks and Shares ISA.

One straightforward strategy is to just invest in a low-cost global index fund, such as the iShares Core MSCI World UCITS ETF (LSE: SWDA). This is a simple index tracker product that provides exposure to around 1,500 companies from 23 developed countries.

This allows access to a lot of top companies. For example, Apple, Microsoft, and Alphabet (Google) are all among the top 10 holdings.

Over the last five years (to the end of March), this ETF has returned about 77%, which translates to an annual return of about 12%.

However, as always, past performance isn’t an indicator of future returns. If we were to see a stock market wobble in the years ahead due to geopolitical or economic issues the ETF could provide lower returns.

Another option is to invest in a selection of high-quality individual stocks in the hope of achieving higher returns than a tracker fund.

Now this is a riskier approach to investing. It’s also more time consuming. However, pick the right stocks, and the rewards can be worth it.

Just a look at the gains delivered by Amazon over the last decade. Had I invested £10,000 in this company 10 years ago, I’d now have around £150,000.

Of course, investors don’t have to choose between these approaches. Personally, I like the idea of doing both.

By putting a large chunk of my Stocks and Shares ISA capital into tracker funds, but also allocating some money to stocks, I could potentially generate excellent returns while keeping my risk levels lower.

How long would it take?

How long would it take me to build a £1m ISA using this approach? Well, it would depend on how much I put into my account and the returns I was able to achieve. After all, I could lose money as well as make it.

But I calculate that if I put £1,000 a month into my ISA and I made a 10% return over the long term (acknowledging that the average return on ISAs over the past 10 years has been less than 10%), I could hit the £1m mark in around 23 years.

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