How I’d invest a £20k Stocks and Shares ISA to target a £43,100 retirement income

Diligent saving and quality growth stocks could be the key to a comfortable retirement. Our writer explores what he’d buy in his Stocks and Shares ISA.

| More on:
Middle-aged Caucasian woman deep in thought while looking out of the window

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m growing my Stocks and Shares ISA to ultimately replace earned income. Goals might differ between investors, of course. Some might be saving to purchase a home or to supplement regular income, for instance.

To target a £43,100 retirement income, I will need a substantial pot of money. I calculate that should be around £540,000.

That might sound like a huge sum but note that it’s not a near-term target. It will likely take years of diligent saving and investing to reach it.

I’d expect to reach this goal if I can maximise my ISA allowance for 14 years, and achieve a long-term average stock market return of around 10%.

Targeting an earlier retirement

To start retirement earlier, I’d aim for a higher return though. Consider that over the past year, my own ISA has grown by over 20%. And over the past decade I’ve managed to considerably beat average returns.

Looking back, I’d put it down to careful stock picking and investing in the strongest sectors. For instance, the US tech sector has been a large driver of global stock market returns over the past decade. And that has been an area of focus for my ISA.

The bulk of my returns over the past year came from Nvidia and Meta. Both tech giants achieved triple-digit gains over the past 12 months, so that really helped my overall performance.

If I can continue to gain 20% every year, I calculate I’d reach my target within a decade. But to do this consistently will be a challenge.

Looking at past returns is useful, but looking ahead is more important. So which stocks should I consider for a new Stocks and Shares ISA?

Strongest sector right now

My favourite stocks right now tend to be in the hottest sectors. For instance, generative artificial intelligence (AI) is likely to be a mega trend over the coming decade.

But don’t just take my word for it. Last year, Nvidia noted that the world has $1trn worth of data centres installed in the cloud that are in the process of transitioning into accelerated computing and generative AI.

The market opportunity in this sector is frankly huge. But it’s not just chip makers like Nvidia that stand to benefit.

An AI play

One AI stock I’d buy next is Oracle (NYSE:ORCL). This cloud infrastructure provider reported strong earnings and a partnership with Nvidia. It’s competing with the likes of Microsoft and Amazon to provide low-cost cloud infrastructure.

According to Oracle executives, its AI infrastructure business is booming. It’s building data centres at a record level to meet demand. Some of these are relatively small, but it’s also building some of the largest ones in the world.

This mega-cap stock offers a double-digit return on capital employed and profit margin. It pays a dividend and trades on a forward price-to-earnings ratio of 20, which doesn’t strike me as expensive, given its growth outlook.

Bear in mind it has $80bn of debt, which isn’t something I want to see. So far, it’s been manageable, but I’d prefer if it pays that down over the coming years.

Overall, with spare cash in my ISA, I’d press the ‘buy’ button.

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.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harshil Patel has positions in Meta Platforms and Nvidia. The Motley Fool UK has recommended Meta Platforms and Nvidia. 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »