The best flexible Cash ISA rate on the market at the moment is just 1.3%. This tiny rate of interest doesn’t even match inflation. That suggests any money saved in one of these products will lose purchasing power over the long term. To put it another way, deciding to stash your money away in a Cash ISA could be damaging for your financial health.
By comparison, after recent declines, the FTSE All-Share Index now offers a dividend yield of 4.7%. As such, this might be a better place to invest your hard-earned money if you’re looking to grow your wealth over the long run.
The FTSE All-Share is an index of 568 of the UK’s top companies. The dividend yield is an aggregation of all the dividends these companies provide to their investors.
That implies the distribution is relatively secure. If one company fails, it’s unlikely to have a significant impact on the overall distribution. Indeed, even if 10% of the companies in the index go bankrupt, the dividend yield should remain at an attractive level.
The index’s diversification is its most significant advantage. The companies that make up the FTSE All-Share generate revenues all around the world in multiple different sectors of industry. That should provide plenty of insulation against the current market volatility.
Indeed, while some companies will suffer if the coronavirus outbreak sparks a global recession, others, such as pharmaceutical and tech companies, are unlikely to see a big dent in demand.
By buying the index, investors don’t have to take the risk of purchasing the wrong stock. And while it may be difficult to predict what the future holds for the stock market in the short term, it’s highly likely over the long run, the index will move higher.
The global economy might enter a recession this year, but it’s likely to be bigger in five or 10 years than it is today. That should translate into earnings growth for many of the FTSE all shares constituents. Higher earnings should lead to higher stock prices.
As such, it’s highly likely that the index will rise over the long pull. Even if it doesn’t increase from current levels, there’s still that 4.7% dividend yield on offer.
The best way to invest in the FTSE All-Share is to buy a low-cost index tracker fund. It’s relatively easy to find a fund that charges a low annual management fee just to replicate its performance. Vanguard’s FTSE UK All Share Index Unit Trust, for example, charges just 0.06% per annum in management fees.
An investment of £10,000 in the index back at the end of 2009 would be worth more than £20,000 today. Investors haven’t had to do anything to profit from this growth. All you need to do is set up a monthly investment plan, sit back, and let Vanguard take care of the rest.
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Rupert Hargreaves 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.