Forex trading can seem like an alluring way to create a lot of money very quickly. Unfortunately, the reality is many investors end up losing almost everything. That’s why I firmly believe buying UK shares in an ISA is the better investment strategy.
Forget forex trading
Since 2018, spread betting and forex trading providers have had to provide a warning to customers. Go to any website that provides these services and there’s a disclaimer noting how many traders lose money on the platform. The figures vary. But, on average, more than 75% of investors lose money in the spread betting and forex trading markets.
To put it another way, there’s a 25% chance of making money in these markets. The same doesn’t appear to be true with UK shares.
Over the past three decades, the FTSE 250 has produced an average annual return for investors of 12%. This implies anyone who acquired the index in 1990 would be sitting on profits.
I think these figures clearly show why I believe UK shares are the better investment and forex trading in the long run. The odds of earning a profit from equities are significantly higher. And when owned inside a Stocks and Shares ISA, these investments come with tax benefits as well.
UK shares in an ISA
Any investor can put £20,000 per year in an ISA. Any income or capital gains earned on this balance is tax-free. It doesn’t even have to be declared on a tax return.
This could produce significant benefits over the long term. As noted above, over the past three decades, FTSE 250 shares have produced an average annual return of 12%. As such, an investment of £1,000 made in 1990 would be worth just under £37k today.
I calculate the capital gains tax on this for a higher rate taxpayer would be around £5k. If held inside an ISA, there would be no tax to pay at all. These figures are just a rough example.
Diversified portfolio
Rather than buying the whole FTSE 250, I’ve acquired a diversified portfolio of UK shares instead of depending on forex trading to get rich.
Companies in my portfolio include insurance giant Prudential, oil producer Royal Dutch Shell and dividend champion British American Tobacco. Together, these businesses provide an average dividend yield of around 4%, which is entirely tax-free when held in an ISA.
I’m also looking to add some growth stocks to my portfolio in the near term, to boost its capital growth potential. And another advantage of using this approach compared to forex trading is the fact it doesn’t require consistent monitoring.
All I have to do is pick the companies to buy, sit back, and watch my money grow. Unlike forex trading, which seems to require a lot of effort to lose money…