No savings at 30? I’d shoot for a million by drip-feeding £10 a day into a Stocks & Shares ISA

I opened my first Stocks and Shares ISA last year. Now I’m fretting about how much I should have saved up by age 30!

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I opened my first Stocks and Shares ISA last year, aged 27.

According to finance gurus, I should have already saved one year’s salary by 30 if I want to arrive at retirement with a plush nest egg.

It’s safe to say that I haven’t hit that target yet. And I’m not alone: in fact, 40% of adults under 30 have zilch saved up.

But by saving just £10 a day, my calculations show I could go from zero to retiring with £1m in the bank.

Choosing the right vehicle

I would drip-feed that £10 a day into a Stocks and Shares ISA.

This type of account allows regular punters like me to buy shares in some of the finest companies in the world – like Apple, Microsoft, and AstraZeneca. Historically, 8%-10% has been the typical annual stock market yield per year. Of course, investing in the stock market is risky and future returns are never guaranteed.

An alternative would be a Cash ISA. The returns I’d see in this account are linked to interest rates, which are 4% currently. The advantage here is I would avoid the type of volatility that is standard in the stock market.

Let’s run the numbers and watch how my £10 per day could grow in both types of accounts.

The power of compounding

Saving £10 a day could get me to £1m before I retire – even starting from nothing. However, I’d have to do it in a Stocks and Shares ISA.

The FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – has historical annual gains of about 8%. On the other hand, the FTSE 250 – the 101st to the 350th largest companies – has returns of about 10%. I took a 9% annual return as the basis of my calculations.

As the table below shows, in a Stocks and Shares ISA, I could smash through the million-pound mark by the time I reached 70, setting me up for a comfortable retirement.

Years investingCash ISA (3%)Stocks and Shares ISA (9%)
5£19,770£21,844
10£43,822£55,454
20£108,690£186,734
30£204,710£497,523
40£346,843£1,233,271

However, if I’d been just as thrifty but saved into a Cash ISA for those 40 years, I’d still be a long way off my target.

Depressingly, it would take 64 years before I reached £1m under the assumed 3% rate of return in a Cash ISA.

An extra push

If I wanted to hit the one-million mark even sooner, I could try investing in individual stocks.

For example, if I’d invested in Alphabet in 2005 I’d have netted 2,000% returns up to now. That beats the slow and steady FTSE 100, which is up 60% over the same period.

Of course, investing in individual stocks is riskier, because I could easily choose a dud instead of a diamond and lose all my money.

Shooting for a million?

I’m not stressing about getting to £1m in reality.

My philosophy is to diligently keep putting spare cash away in my Stocks and Shares ISA.

I’ll let the magic of compound interest do the rest.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Apple, and Microsoft. 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.

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