More than £360bn is held in Cash ISAs in the UK, with around 4.5m adults holding over £10,000 without also investing in a Stocks and Shares ISA.
But what if a saver had instead put 10 grand into the stock market a decade ago? What sort of return would they have now? Let’s find out.
Chalk and cheese
According to The Investment Association (IA), a £10,000 sum put inside a Cash ISA a decade would now be worth roughly £8,400 in real terms. This is due to inflation, which erodes purchasing power, as I’m sure we’re all aware today.
However, 10 grand invested in a global index fund a decade ago would today be worth about £19,700 in real terms. So basically a doubling.
While there’s no guarantee this return will be replicated moving forward, it shows how the stock market significantly outperforms cash over the long run. And that’s information worth taking seriously, especially when UK inflation remains frustratingly stubborn.
Active investing
A global tracker fund is essentially a giant bucket that holds a small slice of nearly every major listed company in the world. But for investors willing to take on more risk, buying individual shares can be even more lucrative.
Consider the five-year price returns of these popular UK stocks:
- Rolls-Royce: +1,009%
- Shell: +156%
- Lloyds: +128%
- Tesco: +121%
- BAE Systems: +312%
Note, these returns don’t include dividends!
As mentioned, stock picking is riskier because unexpected things can go wrong at companies. For example, an accounting error at WH Smith last summer sent its share price crashing 42% in one day!
To offset this risk, it’s important not to go all-in on a small number of shares. Diversification is a cornerstone of portfolio construction.
Wise
Which UK stock do I think could produce strong returns over the next decade? Wise (LSE:WISE) is one that I own in my SIPP and Stocks and Shares ISA.
The company helps people and businesses transfer money internationally, both quickly and cheaply. Back in the day, this tended to cost an arm and a leg due to the myriad hidden bank charges and mark-ups.
In the 12 months to the end of March, Wise’s cross-border volume increased 25% to £181.7bn. Active customers grew 21% to 18.9m, while business customers grew 26% to 572,000. On a constant currency basis, underlying income grew 19% to £1,619m.
Co-founder and CEO Kristo Käärmann commented: “More and more people are using Wise at home or abroad for their everyday spending, for paying bills, for savings and investments. That’s why last month we formally launched our UK current account with a physical branch concept on Oxford Street in London.”
I’ve just got back from a trip to Poland, where I used my Wise account to pay for everything. However, it’s transferring money for large financial institutions where the big opportunity lies.
And it has partnered with some heavy hitters, including Standard Chartered and Itaú Unibanco (the largest bank in Latin America). This is how Wise plans to eventually move trillions.
The biggest risk to cross-border volume growth is a global recession caused by the inflationary war in Iran.
However, looking ahead, I reckon Wise will become a much larger company as its infrastructure becomes the plumbing for more of the world’s financial system.
