Investing within a Stocks and Shares ISA, for the long term, is one of the best ways to build wealth in the UK. With these accounts, one can access a vast selection of growth investments and all gains are tax-free.
How much money could I have made if I’d put £20k (this would have been more than one year’s annual allowance at the time) into one of these ISAs a decade ago? A lot, quite frankly.
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.
A tax-free wrapper
The returns an investor will generate within a Stocks and Shares ISA will depend on the investments they choose.
That’s because these ISAs are merely tax-efficient ‘wrapper’ accounts. They are not investments themselves.
But let’s look at a few examples of what I could have achieved over the last decade with an ISA.
A global tracker fund
Let’s say I put the whole £20,000 into a simple global tracker fund such as the iShares Core MSCI UCITS ETF.
In this scenario, I’d now have around £58,000 after fees.
Not a bad result at all, given the hands-off, passive nature of tracker funds.
An actively-managed fund
Now, let’s say I’d put the whole £20k into Fundsmith Equity – the UK’s most popular actively-managed equity fund.
According to one data provider, it has returned about 14.6% per year over the last decade.
Crunching the numbers, I calculate that I’d have roughly £70,000 today once fees are factored in.
Tech stocks
What about if I’d taken the stock picking into my own hands and invested in a selection of tech stocks?
Let’s say I had put £5k into Apple, Alphabet, Microsoft, and Amazon shares a decade ago.
In this scenario, I’d have done really well.
The average return over the last decade from these stocks is about 23.5% per year.
So, factoring in GBP/USD exchange rates, I’d now have a little over £200k from my £20k investment – an amazing result.
It’s worth pointing out, however, that it would have taken some foresight to pick those four stocks a decade ago.
At the time, these companies were far less dominant than they are today.
It’s also worth noting that all four stocks have been volatile over the last decade. I would have had to put up with a lot of portfolio turbulence.
Tesla shares
Finally, what about if I’d gone ‘all in’ on Tesla stock?
Well, it has returned about 39% per year over the last decade.
Crunching the numbers, I calculate that I’d now have around £680,000 in my ISA once exchange rates and fees are factored in.
That’s obviously a life-changing amount of money.
However, I will point out that putting £20k into Tesla 10 years ago would have been a very risky approach as the company was in its infancy and only had a few cars on the road.
And there would have been some wild portfolio value swings along the way.
Powerful investment vehicles
Of course, I have cherry picked a few examples here.
Not all investments have performed this well over the last decade.
The takeaways are clear though.
Stocks and Shares ISAs are powerful investment vehicles.
And picking individual stocks can potentially deliver huge returns.
