£10,000 in the bank? That could turn into a yearly passive income of £29,834!

With returns on savings products falling, I think investing in a Stocks and Shares ISA could be the best route for me to create long-term wealth.

| 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.

A retired couple review their investing portfolio

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.

Owning a savings account has proved more lucrative than normal in the past couple of years. A stream of Bank of England (BoE) interest rate increases has pushed savings rates far higher than we saw during the 2010s.

However, rates have been declining since the BoE’s cut on 1 August to 5%. I’ve already received several emails from my savings providers advising me that my returns will decrease. I anticipate more notifications too, as the central bank’s likely to lower interest rates further.

Placing money in a savings account can be a great way to manage risk. The specific amount to keep in cash versus investing in riskier assets like shares should be tailored to individual situations, investment goals, and risk tolerance.

Should you invest £1,000 in Legal & General 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 Legal & General made the list?

See the 6 stocks

But with rates dropping, it could be a good idea to re-evaluate how much you hold in savings. Here’s what I’d do if I had £10,000 sitting in my account and could make additional monthly investments.

Choose an ISA

The first thing I’d do is open a tax-optimised product, like a Stocks and Shares ISA. Despite its name, I can invest in a wide assortment of assets like equities, funds, trusts and bonds. And I don’t have to pay a single penny to the taxman on any capital gains I make or dividends I receive.

I’d concentrate on filling my ISA with US and UK shares because of the exceptional returns I could make (more on this later).

While I’m at it, I’d also look at opening a Cash ISA. With other savings accounts, I’d pay tax on any interest above my personal allowance (this is set at £1,000 and £500 for basic- and higher-rate taxpayers respectively).

A Cash ISA, like its share investing equivalent, could therefore save me a fortune in tax over the long term.

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.

Diversify my holdings

With my ISA set up, I’d aim to pack it out with a diversified portfolio of shares. This gives me an opportunity to capitalise on an array of investment opportunities while helping me to spread risk.

The ideal number of stocks would be 15 to 20, although I could choose fewer if I also invest in exchange-traded funds (ETFs) which contain a basket of different shares. Alternatively, I could buy an investment trust. These are listed companies that also invest in other businesses.

Murray Income Trust (LSE:MUT) is one that could help me hit my investment goals. It has money invested in 52 companies such as AstraZeneca, Unilever, National Grid and Anglo American. This gives me excellent diversification by sector and geography.

Created with Highcharts 11.4.3Murray Income Trust Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What’s more, most of its holdings are in FTSE 100 and FTSE 250 companies, which means I could make a near-double-digit return each year. These indices have produced an average annual return of 9.3% since the early 1990s.

Past performance is no guarantee of future returns. But if this performance were to continue, a £10,000 lump sum investment in Murray — combined with a regular £200 monthly top up — could turn into around £745,850 over 30 years. This could then give me an annual passive income of £29,834 if I drew down 4% each year.

High exposure to cyclical shares mean the trust’s returns could disappoint during economic downturns. But as a long-term investor, I still think it could be a top buy right now.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc and Unilever. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »