I don’t believe in investing my hard-earned cash in low-paying savings products like Cash ISAs.
Okay, I have a Cash ISA which I use for holding money temporarily before making a big purchase and for retaining emergency cash. But using this sort of product as a means of saving for retirement is a recipe for disaster, in my book. This is why the majority of the money I earn is used to buy UK shares in a Stocks and Shares ISA instead.
The pros and cons of Cash ISAs
Let’s look at the best-paying, instant-access Cash ISA currently on the market. According to moneysupermarket.com, that’s the Marcus account from Goldman Sachs — offers an interest rate of just 0.5%.
The advantage of investing in a cash product over something like a Stocks and Shares ISA is of course that the £1 I choose to park in it will still be worth £1 in five, 10, even 50 years. Conversely, who knows what the £1 worth of shares I buy in my Stocks and Shares ISA will be worth decades from now. Stock markets go down as well as up and the value of my holdings could be worth considerably less that I’d be hoping for.
But here’s the problem with using a Cash ISA to try and retire in comfort. Those earning even a decent salary are unlikely to make enough to live out their post-retirement dreams with such low-yielding products.
Let’s say that someone aged 30 manages to squirrel away £300 a month for their retirement. Using that 0.5% from Marcus as an example, over the next 35 years, that person will have made £137,669.
That’s better than a hole in your pocket, clearly. But dig down a little deeper and that figure suddenly doesn’t look so enticing. Firstly, for those looking to buy an annuity (a monthly pension payment until death) that sort of figure would barely cover the basic cost of living.
According to Which?, a single person would need a retirement pot worth £123,365 to have an annual income of £13,000 through a combination of the State Pension and annuity payments.
How to retire with cash to spare
And secondly, the amount I can expect to make with a Stocks and Shares ISA smashes what I’d likely end up with by saving in a Cash ISA. Let’s say that person invested £300 per month on UK shares instead. Over the same 35 years, they could expect to have built a retirement pot worth a much-improved £692,694.
That’s based on past form that shows the average long-term UK share investor makes an average annual return of 8%. This sort of pot would provide an annual income of £31,000 if an investor were to buy an annuity at the point of retirement, according to Which? And it would allow them to live a “luxurious retirement,” it says.
I think stock investing is the best way to make money for the future. There are plenty of top UK shares to help investors retire in luxury, like these identified by The Motley Fool analysts.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Royston Wild 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.