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Why a Stocks and Shares ISA will make you richer 98% of the time

I’m not a gambling man. I don’t like taking big risks with money, I like the odds to be in my favour. Yet I invest all my long-term retirement funds in stocks and shares.

Why would I do that? Stock markets are simply not as risky as you think, provided you give them time.

Positive return

New analysis backs me up by showing if you invest in the stock market for at least 10 years you will generate a positive return 98% of the time. Now those are the type of odds I am willing to take a punt on.

Investment platform Willis Owen found that over the long term, a stock market index such as the FTSE 100 is nearly always a long-term winner. It looked at the total return of the FTSE 100 over 10 years on a rolling monthly basis since January 1986 and found investors would have made a profit in 275 out of 281 periods. They would have lost out in just six. Again, I like those odds.

The average total 10-year return with dividends reinvested was an impressive 139.36%, turning £10,000 into £23,936. The largest return was 433% while the biggest loss was 14.5%. 

Rotten timing

The only time you would have lost money since 1986 would be if you bought during the tech boom and sold during the financial crisis.

Investors who got caught up in dot.com euphoria and bought in the six months running from January to June 1999, then lost their nerve in the wake of the financial crisis and sold in the same six months a decade later in 2009, would have lost out.

That’s the only way you could have lost money over a 10-year term in the last 33 years. I can’t imagine many people actually did that. Since most people invest in dribs and drabs and take their money out in dribs and drabs, I would argue that the chances of making a profit over 10 years is actually greater than 98%.

Think long term

Over shorter periods, the stock market becomes more of a gamble. For example, if you had bought the FTSE 100 on 1 January 2017 and sold on 31 December that year, your total return would have been 11.9% with dividends reinvested. If you had bought on the same dates in 2018, you would have made a loss of 8.7%.

You shouldn’t invest in shares for just one year. Five years is the absolute minimum. Willis Owen’s analysis shows that investors received a positive return 88% of the time if they invested over that term.

Making a million

Shorter investment terms are riskier as you have less time to recover from any correction. If you are saving for retirement, you should ideally be putting money away for 20, 30 or 40 years, which is when stock markets really work their magic.

If you give it long enough, you could even make a million from a Stocks and Shares ISA. If you are wondering how to get started, here are some of the stocks that ISA millionaires have put their money on. It’s been a winning investment for them. And less of a gamble than you think.

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Harvey Jones 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.