How much should an investor put in a Stocks and Shares ISA to return £50 a day?

This Fool is considering the passive income potential of a Stocks and Shares ISA and one stock he thinks is worth consider for long-term goals.

| 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.

With a Cash ISA or a Stocks and Shares ISA, UK residents can retain 100% of the capital gains they earn tax-free. But that doesn’t mean they offer the same value in terms of potential returns.

Studies show that over 10 years, a Stocks and Shares ISA can return up to four times more on average than a Cash ISA. Recently, high interest rates have made Cash ISAs more attractive. But with the Bank of England eyeing further interest rate cuts, those days may soon be over.

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.

Should you invest £1,000 in BHP 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 BHP made the list?

See the 6 stocks

Of course, it’s not that black and white. Self-directed investments in stocks carry risk, particularly for inexperienced investors. To avoid getting stuck in a value trap, it’s critical to conduct sufficient market research and pick the right stocks.

Cash ISA returns

With a Cash ISA, investors will be able to net interest of around 4.5% at current rates. Even if that rate held, about £400,000 would need to be held in the ISA to return £50 per day (£1,500 a month).

For a dedicated investor who puts £500 a month in the ISA, it would take around 31 years to reach £400k (by compounding the returns).

Stock market returns

Unlike a Cash ISA, returns on stocks are not fixed so we can only work on averages. According to research by AJ Bell, the average rate of return on a Stocks and Shares ISA is 9.6%.

At that rate, it would only need £187,500 invested to return £1,500 a month. By investing £500 a month, it would take 21 years. 

£500 too much? Investing £250 a month would only take 27 years.

At that point, an investor could withdraw £1,500 a month or move the investment into a portfolio of dividend shares that make regular payments.

Again, this is an average and the actual rate an individual investor experiences could be higher or lower. In addition, there’s the added risk of a market crash bringing the entire value down.

Considering stocks

For investors willing to accept the risk, a self-directed ISA is the clear option. One type of asset that many early investors choose to simplify stock picking is an investment trust.

These typically provide exposure to a balanced portfolio of shares picked by an experienced fund manager.

F&C Investment Trust (LSE: FCIT) is one of the longest-running investment trusts in the UK. It was founded in 1868 as the first world’s first collective investment scheme.

Created with Highcharts 11.4.3F&c Investment Trust Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The fund invests in a diversified mix of shares and assets, making it more resilient to risk in specific industries or countries. However, it is still weighted more towards US tech stocks than other sectors. Think Nvidia, Apple, Microsoft… the usual suspects. A slump in this sector would hurt the stock price. 

Moreover, there’s always a risk the fund manager makes bad decisions, hurting the fund’s performance. 

The fund also incurs an annual charge of 0.3% and an ongoing charge of 0.8%. Since January 2005, its stock price has climbed 497.4%, equated to an annualised growth of 9.35% per year. In addition to the price growth, it pays a regular and reliable dividend with a yield typically around 1.3%.

I’m yet to invest in the fund as I haven’t got the spare cash currently, but I think it’s a great one to consider for long-term value investors.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc, Apple, Microsoft, 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

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »

Investing Articles

When will Lloyds shares hit £1?

Lloyds shares have surged over the past 12 months, but where will they go next? Dr James Fox thinks there’s…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Stock-market crash: the meltdown of the Magnificent 7

Just before Christmas, these Magnificent Seven stocks were riding high. But after the worst quarter for US stocks since autumn…

Read more »

Investing Articles

Wow! IAG shares are undervalued by 47%, according to analysts

IAG shares have surged over the past 18 months, but analysts are pointing to more growth. Dr James Fox takes…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 shares to consider for an ISA before 5 April!

These FTSE 100 and FTSE 250 shares are on sale today! Here's why long-term Stocks and Shares ISA investors should…

Read more »

Investing Articles

How I’m building a new second income for 2035

Millions of us invest for a second income. Here are the steps Dr James Fox is taking in order to…

Read more »

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »