A £20k Stocks and Shares ISA put into a FTSE 250 tracker 10 years ago could be worth this much now

The idea of a Stocks and Shares ISA can scare a lot of people away. But here’s a way to invest in one that helps to lower the risk.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Perhaps the simplest way to use a Stocks and Shares ISA is to go for a tracker fund.

With the UK stock market returning around 7% per year on average over the long term, that could compound up very nicely.

We can buy a tracker as an exchange-traded fund (ETF). That’s a pooled fund, listed on the stock market itself. So we can buy and sell shares in it directly.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Boring big stocks

The FTSE 100 might seem like the obvious index to track, and I think it can be a great choice. It avoids the dangers of small-cap stocks, which can sometimes boom and bust rapidly.

But it also means we miss the growth opportunities that can come with smaller companies. So what about a FTSE 250 tracker?

That still keeps us away from the tiniest of firms. But it includes a nice mix of mid-cap growth and dividend stocks. And the FTSE 250 has beaten the FTSE 100 since launch.

The past decade

Let’s see how the iShares FTSE 250 ETF (LSE: MIDD) has gone.

Created with Highcharts 11.4.3iShares Public - iShares Ftse 250 Ucits ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

In the past 10 years, it’s grown by 30%. That’s a bit below the FTSE 250’s 36%, but the fund has to levy charges, and there are usually small tracking errors too.

It’s still well above the 18% that the iShares Core FTSE 100 UCITS ETF, which tracks the FTSE 100, would have done. Oh, and it pays a dividend yield of around 3% on top of that. Over 10 years, that could double the return.

And looking back further shows where the smaller index really shines.

Longer-term returns

Since 2009, when the fund was launched, it’s up 199%. Over the same time, the FTSE 100 has managed just 80%. Even if FTSE 100 dividend yields were a bit better, it still shows the outperformance of smaller stocks.

A full £20k Stocks and Shares ISA allowance put into the iShares FTSE 250 tracker 10 years ago would be worth around £32,000 now with dividends included… even more if they were reinvested.

And since 2009, a £20k stake would have trebled, plus dividends added on top. No FTSE 100 tracker would have matched that.

Even better

But here’s where the fun really starts… what about tracking even smaller stocks?

The SPDR FTSE UK All Share ETF tracks the FTSE All-Share index, with all those little tiddlers. And in the past 10 years, it’s up 76%. It’s been riskier, though.

And since it was launched in 2012, the All-Share tracker has gained 128% compared to the FTSE 250 tracker’s 74%. The outperformance has come since the 2020 stock market crash, for a reason I have yet to uncover.

What next?

An index tracker can’t eliminate stock market risk. But it can help offset it by spreading it across hundreds of different stocks. Each investor must weigh up their own approach to risk, and a tracker adds a nice option.

And we don’t need to give up on choosing an individual strategy, with trackers available for a range of indexes.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Alan Oscroft 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.

More on Investing Articles

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »