I’ve never been much of a gambler. That’s because I’m perennially unlucky… and hate losing money.
Mind you, you need to be fantastically lucky to win the National Lottery, given that your chances of hitting the jackpot are a mind-boggling one in 45m. You might like those odds, I don’t.
There’s a very different way of throwing money away, and that’s by leaving it in a cash ISA paying an interest rate of around 1% or so. Cash ISA devotees have missed out on more than £40,000 in potential returns since the tax-free savings accounts were first launched 20 years ago, new research from Scottish Friendly reveals. If they had maxed out their annual ISA allowance every year since 1999 they would be sitting on an average of £153,191 now.
Shares win again!
However, if they had opted to invest their money in the FTSE All-Share index through a Stocks and Shares ISA with average annual charges of 1.4% would have accrued a total of £194,665 – some £41,474 more.
Some investors may feel nervous about today’s stock market, given recent volatility. Provided they’re investing for at least five or 10 years, and preferably longer, they shouldn’t. Over longer periods, short-term volatility doesn’t really matter much. You simply ride it out and take the opportunity to pick up cheap stock on the dips.
2019 could be a far better year for shares than people think. In fact, the FTSE 100 is currently forecast to generate an all-time high pre-tax profit of £223bn in 2019. This is a rise of 13% on 2018 and thrashes the previous peak of £202bn, hit eight years ago in 2011, when oil and mining stocks listed on the index were flying.
The analysis comes from online trading platform AJ Bell and investment director Russ Mould says the index is doing a good job of confounding the Cassandras, naysayers and pessimists with a capital gain of nearly 8% in 2019 to date. That’s despite ongoing uncertainty over global tariff and trade policies, Brexit and global economic growth.
The FTSE 100 still looks cheap, with a forward price/earnings ratio of 12.5 times, comfortably below the 15 usually seen as fair value. This suggests a lot of bad news is already being priced in to share values, which have largely underperformed since the June 2016 referendum. Mould says: “UK equities look unloved and may therefore be undervalued.”
There are currently 25 FTSE 100 members trading on less than 10 times forward earnings, which suggests there are serious bargains to be had. Here are two cheap stocks you might like to consider. And here are three more, one of which trades at a rock bottom valuation of just 5.8 times earnings.
The FTSE 100 also offers a prospective dividend yield of 4.7%, three times the return on the very best cash Isa. If you reinvest those dividends for growth, you will be able to pick up more stock and turbocharge your ultimate returns.
You could still flutter away a few pounds on the National Lottery, for the fun of it, but most of your long-term savings should go into stocks and shares.
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Harvey Jones has holds the iShares FTSE 100 and HSBC FTSE 100 Index but has no position in any other 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.