Investing in the stock market is one of the best ways to grow your savings over time. In fact, investing some of your cash each month is a tried and tested way to build wealth for the future. Start early enough and you can expect a tidy amount in your Stocks and Shares ISA after a decade or two. But if you’re a latecomer to the game, don’t worry. As the well-known saying goes, the best time to plant a tree was 20 years go. The second-best time is now.
Investing little and often
Many ISA providers allow you to invest from as little as £25 a month. So, regardless of the amount you have each month to invest, there’s no excuse not to get started. Attractive returns won’t necessarily come in the short term but, over time, your monthly investments will start to add up. After 30 or so years, your pot will have grown substantially.
Moreover, investing every month can help smooth out the peaks and troughs of the stock market. This comes in especially handy in times of heightened share price volatility. Ultimately, investing monthly gives you a lower risk profile and you don’t have to worry about timing the market.
The choice is yours as to whether you invest in individual shares or a straightforward index fund. In my opinion, if you’re a complete beginner it makes sense to invest in a low-cost tracker fund. That way, you have exposure to the entire market in one simple investment. Alternatively, building a basket of diversified individual shares is the best option if you’re looking to outperform the market.
The importance of the Stocks and Shares ISA
Regardless of the strategy you deploy, the importance of investing in a Stocks and Shares ISA cannot be overstated. The ISA acts as a tax wrapper, and placing your investments inside one offers three main advantages. Namely, your profits, interest earned on bonds. and dividend income won’t be taxed. Who wouldn’t want to keep more of their returns anyway?
In the short to medium-term, you’re unlikely to need these advantages thanks to the generous capital gains allowance on investments held outside an ISA. However, over time, as the value of your ISA grows, you’ll be thankful you opened one.
Make a million
According to most experts, investing £250 a month is the sort of monthly amount required for a comfortable retirement. Let me demonstrate why. Assuming an annual return of 9%, after 35 years of investing £250 a month, your pot would be worth £678,250!
What’s more, it’s worth noting that over the past 30 years, the FTSE 250 index has returned nearly 12% per annum. As such, if you were able to match that rate of return for the following 33 years, investing just £250 a month, your Stocks and Shares ISA would have a value of £1,092,919.
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Matthew Dumigan 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.