When I started saving a little from my first job, I didn’t even know a Stocks and Shares ISA existed. I dallied for years with poor investments. I don’t even want to calculate how much my lack of knowledge and action cost me
If was starting again today with £3,000, I’d make a very simple investment. It’s one that would be considered ‘risky’ to some people and ‘dull’ to others. But a simple calculation shows it could lead to £52,000 as I’ll explain in a second.
And the first investment is vital. I know this very well as my early attempts at making my money work for me were pitiful. I don’t think I made a single good move for years.
Frittered away
For instance, my first attempt at investing was with a savings account. My first month I didn’t even get £1 in interest.
Property was another investment I looked at. Putting the deposit on a house would likely have turned out lucrative, but a fixed abode would have been a chain around my neck.
My next move was even worse. I didn’t invest in anything. I assumed making a good return on my money was impossible for a small-time saver so I gave up.
The turning point was when I was exposed to the past performance of stock markets. For example, here’s the long-term record of one of the most popular markets to invest in a Stocks and Shares ISA – the US S&P 500.
That market boasts an average yearly return of over 10%. A rate that high would grow even a smallish sum like £3,000 enormously given time to compound.
After 30 years, it’s worth £52,348. After 40 years, it’s worth £135,778. Does that seem right? Perhaps not. Let’s look at the following table to show how a 10% increase breaks down year by year.
| Year | Total | Year | Total | Year | Total | Year | Total |
| 1 | £3,300 | 11 | £8,559 | 21 | £22,201 | 31 | £57,583 |
| 2 | £3,630 | 12 | £9,415 | 22 | £24,421 | 32 | £63,341 |
| 3 | £3,993 | 13 | £10,357 | 23 | £26,863 | 33 | £69,675 |
| 4 | £4,392 | 14 | £11,392 | 24 | £29,549 | 34 | £76,643 |
| 5 | £4,832 | 15 | £12,532 | 25 | £32,504 | 35 | £84,307 |
| 6 | £5,315 | 16 | £13,785 | 26 | £35,755 | 36 | £92,738 |
| 7 | £5,846 | 17 | £15,163 | 27 | £39,330 | 37 | £102,012 |
| 8 | £6,431 | 18 | £16,680 | 28 | £43,263 | 38 | £112,213 |
| 9 | £7,074 | 19 | £18,348 | 29 | £47,589 | 39 | £123,434 |
| 10 | £7,781 | 20 | £20,182 | 30 | £52,348 | 40 | £135,778 |
And if I want this kind of growth, a large market index fund is a no-brainer for a first investment. I can invest in the S&P 500 as I mentioned above. The FTSE 100 is the closest UK equivalent.
My own first investment was a world tracker. Diversifying across the world appealed to me. I still hold the fund today and it’s been very lucrative.
Which country’s economy will perform best over the next decade or two? Will it be China? Or the UK? India? Or maybe America? It doesn’t matter to me. I have exposure to all of them.
The best place
Investing broadly does limit the potential upside. I get the average return, not the extraordinary one.
Choosing individual stocks is a way to increase my return. While I still recommend index funds as a low-risk first step, my own journey moved towards a balanced portfolio of funds and shares. I like the greater control over what I’m putting my money towards for one thing. The chance for higher returns is a nice extra too.
However I invest, making money isn’t guaranteed. The historical record is outstanding, but that’s the past. The future is unknown.
Yet even with these risks, I think the stock market is no better place for a first £3,000 investment in an ISA.
