Fancy making a substantial second income with a Stocks and Shares ISA? Here’s one strategy to consider.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Investing early on

With the new tax year under way, every adult in the UK has a fresh £20,000 ISA allowance to exploit. Not everyone has this much cash to hand and drip-feeding money into an ISA can yield brilliant returns. However, those who can start buying shares straight away can grow their wealth even faster.

Stock markets tend to rise over time, so getting money invested earlier increases exposure to long-term growth. Data from Vanguard backs this up — over a typical 12-month period, investing a large upfront sum has historically beaten drip-feeding cash about 68% of the time. Over three years, the odds improve to 74%.

Not only does lump sum investing win more often. It also tends to deliver higher returns over time, as gains start generating their own returns sooner. Over 12 months, this strategy typically earns around 2.3% more than spreading investments over the year. Over three years, this edge rises to 4.2%.

Let’s see how that looks in monetary terms.

A £297k boost

Say someone invests £20,000 at the start of each tax year over 20 years. While positive returns are never guaranteed, let’s also assume they secure an annual average return of 9%. At the end of this period, they’d have an ISA worth £1,350,000.

If they drip-fed that £20k over the course of each tax year, investing an equal amount each month, their eventual windfall would be £1,053,500. That’s a brilliant amount, but still almost £297,000 worse off.

What sort of investments could someone consider for a lump sum in to target a £1,350,000 ISA? Diversification is critical, and an exchange-traded fund (ETF) like the iShares FTSE 250 ETF (LSE:MIDD) can deliver this cheaply and easily.

It spreads investors’ cash over the whole of the FTSE 250 index. So it provides exposure to a wide range of industries and different parts of the globe. The advantage? It spreads risk and provides exposure to many growth and dividend opportunities.

On the downside, a focus on UK shares leaves the fund vulnerable if the broader London market underperforms. But this hasn’t stopped it delivering excellent returns over the last decade. Since early 2016, this iShares product has delivered an average yearly return of 8.7%.

A £1,350,000 ISA portfolio could deliver a £94,500 annual income if invested in 7%-yielding dividend shares. This works out at £7,875 per month.

And do remember that while lump sum investing can deliver outsized returns, even drip-feeding money into an ISA can help investors secure a comfortable retirement.

The post Here’s how a £20k ISA could generate £7,875 in monthly passive income appeared first on The Motley Fool UK.

Offering tax relief of 20% to 45%, these popular investment products provide an extra financial boost for Britons to grow their portfolios. With that extra cash, the snowball accelerates more rapidly, as the additional money enhances the compounding effect.

There are some drawbacks, like a restriction on withdrawals before the age of 55 (rising to 57 from 2028) and tax liabilities on drawdowns. These can be significant disadvantages compared to the Stocks and Shares ISA, another widely used tax-efficient product.

Yet, the cash boost on offer can still make them no-brainer products to consider.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Tax relief boost

The average adult in Britain has £514 to invest each month, according to Shepherds Friendly. But of course this amount can vary wildly depending on individual circumstances.

Let’s say someone has half of this amount to invest in shares each month (£257). If they can achieve an average annual return of 9%, they’d have a portfolio worth £470,501 after 30 years.

That’s substantially below the £941,002 that a £514 monthly investment would create.

Not even the use of a SIPP can make up this gap. Yet, it can still make a substantial difference to one’s standard of living in retirement.

With 20% tax relief applied, our investor would have a portfolio of £564,601. With 45% tax relief, that moves to £682,227. Both of those are quite a leap from that £470,000 a non-SIPP user would have made.

Targeting a 9% return

Of course that sort of return isn’t guaranteed, even with the SIPP’s tax benefits. Stock markets can go up and down and there’s no certainty of making more money than one puts in.

However, with a diversified portfolio, I’m confident this sort of return is possible over the long term. Indeed, Moneyfacts data shows the average Stocks and Shares ISA — which also protects from capital gains and dividend taxes like a SIPP — has delivered an annual return of 9.6% since 2015.

Investors can boost their chances of making a return like this by diversifying their portfolios to reduce risk and maximise investment opportunities. One quick and easy way to achieve this can be by buying an index tracker fund like the iShares FTSE 250 ETF (LSE:MIDD).

This product instantly spreads one’s capital across hundreds of UK mid-cap growth shares. Not only does this provide potential for robust capital gains. It also opens the door to sustained passive income (the index currently has a 3.4% dividend yield, higher than the FTSE 100‘s 3.2%).

A high weighting (44%) of the fund is tied up financial services companies today, creating potential turbulence if the UK and global economies come under pressure. But it also opens the door to long-term growth as the sector rapidly grows.

Exposure to other sectors (like industrials, real estate, consumer goods, and utilities) helps to offset this allocation.

With their enormous tax benefits, SIPPs can significantly help investors can maximise the returns they make from high-performing UK stocks like this.

The post Don’t have much cash to invest? Consider using a SIPP to build long-term wealth appeared first on The Motley Fool UK.

This gives individuals more financial firepower to grow their wealth over time. But how large would someone’s ISA need to be to generate a steady passive income of £20,000 a year?

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Building that ISA

To reach this goal, individuals have a wide range of options. Three of the most popular are:

• To buy an annuity that delivers a guaranteed income for life
• To invest the pension pot in high-yield dividend shares
• To draw down a set percentage of their portfolio a year

Another option is to combine one or more of these choices. For instance, someone could use half their ISA to buy an annuity for peace of mind, and to put the rest in dividend-paying stocks. The latter route carries more uncertainty, but it can also deliver a higher income while also leaving scope for portfolio growth.

The size of the nest egg some needs for a £20k annual income would differ depending on the strategy they chose. But how large would they need if they chose to go down the drawdown route?

Let’s say we have a retiree who wishes to withdraw 4% of their portfolio each year. At this rate, they could expect a regular passive income for about 20 years before the pot runs dry.

To achieve this level of income, they would need a pot worth £500,000. On paper, that looks like a huge number. But with a tax-efficent Stocks and Shares ISA — along with a commitment to regular investing — it’s more than attainable.

Investing £530 a month over 25 years at an average yearly return of 8% could build a portfolio of this size, although this isn’t guaranteed.

Diversifying to build wealth

Today, ISA investors have thousands of UK and overseas shares to consider to target that sort of return. They also have a plethora of investment trusts and exchange-traded funds (ETFs) to help them reach their goals.

Funds like the iShares FTSE 250 (LSE:MIDD) are simple and low-cost ways to build a diversified portfolio. And this one, which provides exposure to the entire UK mid-cap index, allows investors to spread risk across a variety of sectors and different types of shares (namely growth, dividend and value stocks).

Some of the ETF’s largest holdings are luxury fashion house Burberry, precision instrument maker Spectris and online broker IG.

Returns could disappoint during broader economic downturns, as they have in previous years. Yet over time, it’s proved a resilient way to build wealth. Since its creation 21 years ago, this iShares ETF has delivered an average annual return of 8.6%. If this continues, our investor putting £530 here each month could achieve their £20k annual income earlier than planned.

Past performance is no guarantee of future returns. But I’m optimistic a well diversified portfolio — whether through a fund or trust like this, or by buying individual shares — could set investors up for a healthy retirement income.

The post How much do you need in a Stocks and Shares ISA to target a £20k passive income? appeared first on The Motley Fool UK.

But that’s not all. With one of these products, investors enjoy tax relief of between 20% and 45%, depending on their personal income tax bracket. This can be especially valuable for people who don’t have large lump sums to invest, or who can’t make substantial regular contributions.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

With everyday living expenses rising, and social care costs rising even more sharply, these financial products are becoming ever more important. But how much passive income would someone need from their personal pension to retire comfortably?

£2,661 a month

The answer to this question depends on each of our individual circumstances and plans for retirement. But using the UK average laid down by Pensions UK (formerly the Pensions and Lifetime Savings Association) is a good place to start.

It believes the average single person needs a total income of £43,900 each year for a comfortable retirement. That amounts to just under £3,659 a month.

With the current State Pension set at £11,973 per year — or £998 a month — that leaves a shortfall of £31,927 that needs to be made up by a SIPP or other personal savings or investing product. That’s just over £2,661 a month.

Generating a pension income

There’s several ways to use a pension to make a second income in retirement. These include regular drawdown, purchasing an annuity, and buying dividend-paying stocks.

My own plan is to buy high-yield dividend shares. It’s a strategy that could provide me an income for life, unlike using a set-percentage drawdown from my retirement pot. And would also leave scope for further portfolio growth over time.

If I bought 6%-yielding income stocks today, I’d need £533,000 in my SIPP to give me that monthly income of £2,661.

That’s not small change. But by committing to regularly investing, over time this goal is very achievable.

Smashing the target

One quick and simple way is by buying an exchange-traded fund (ETF) like the iShares FTSE 250 (LSE:MIDD) product. Holding this particular fund leverages the exceptional growth potential of UK mid-cap growth shares. And with holdings in hundreds of different stocks spanning multiple industries, it does so in a low-risk way.

Major holdings here include recovering luxury good retailer Burberry and financial services provider Aberdeen.

There have been bumps along the way, as — like other equity-based funds — it can fall in value during broader stock market downturns. But the excellent long-term returns speak for themselves.

Since its creation in 2004, this FTSE 250 tracker’s provided an average annual return of 8.5%. If this continues, someone who invested £500 each month here in a SIPP (through a comination of personal contributions and tax relief) would have £825,353 in their pension pot after 30 years.

That’s well above our £533,000 target, and would give plenty of flexibility for rising living and social care costs three decades from now.

Past performance is no guarantee of future returns. But history shows that a diversified pension including funds like this really can deliver a comfortable retirement.

The post How much do you need in a SIPP to target a £3,659 monthly passive income? appeared first on The Motley Fool UK.

According to the Financial Conduct Authority’s (FCA) latest Financial Lives survey, just 20% of Brits owned shares in 2024, while 17% hold a Stocks and Shares ISA. This equates to 10m and 9.3m people, respectively.

Compare this to the 62% of US adults (according to Gallup) that invest in stocks, for example.

Cash troubles

Most Britons prefer the security and the ease that cash savings accounts offer (71% of UK adults held some form of savings account last year, the FCA said). And since late 2022 they’ve gained popularity as Bank of England (BoE) interest rate hikes pumped up returns.

Savings accounts play a pivotal role in helping people manage their finances and save for retirement. I myself use one to hold cash I may need in a hurry, and to diversify my portfolio to reduce risk. However, investors who rely too heavily on these low-yielding products may be forfeiting opportunities to build life-changing wealth.

And with the BoE cutting rates again, returns on cash accounts could slide significantly in coming years.

1.21% vs 9.64%

Research from Moneyfacts illustrates the huge disparity in returns that share investing and cash saving typically produce.

The financial services provider says that the average annual return for Cash ISA savers is 1.21% for the last decade. That’s several miles below the corresponding 9.64% return Stocks and Shares ISA investors have enjoyed.

The mathematical principle of compounding — where individuals earn money on all their previous returns — means that this difference can have a substantial impact on individual’s wealth over the long term.

Someone who invested £300 a month in a Cash ISA would, after 30 years, have built a nest egg of £216,879 to retire on, if past performances are any guide. By comparison, someone who split this monthly amount 80/20 between a Stocks and Shares ISA and Cash ISA would have made a far higher £837,621.

A top ETF

Investors have to absorb higher risk to target better returns. But investment trusts and funds like the iShares FTSE 250 UCITS ETF (LSE:MIDD) can substantially reduce the danger they face.

These pooled investment vehicles often spread investors’ cash across a wide spectrum of assets. In the case of share investing, they can hold stocks spanning different sectors, sub-sectors, and countries, providing diversification that protects against volatility and specific downturns.

In the case of this exchange-traded fund (ETF), investors have access to the whole of the FTSE 250. Consequently, their exposure is spread over hundreds of companies as varied as property owner British Land, insurer Direct Line, housebuilder Bellway, and IT specialist Softcat.

And with an ongoing charge of 0.4%, investors can achieve diversification with this fund relatively cheaply.

Since its inception in 1992, the FTSE 250 has delivered an average annual return of around 9%. If this continues, our theoretical investor could have a great chance of hitting that £800k+ retirement nest egg if they included this iShares ETF in their portfolio.

Remember, though, that returns could disappoint during periods of stock market volatility.

The post Could savers be missing out on retirement riches by ignoring UK shares? appeared first on The Motley Fool UK.

Yet I don’t believe there’s reason for long-term investors panic. Past performance isn’t always a reliable guide to the future. But both index’s have proven ability to recover from past macroeconomic ordeals.

The FTSE 100’s risen 76% over the last 20 years, and the FTSE 250‘s gains have been even more impressive at 216%. This is a period in which once-in-a-century pandemics, sovereign debt crises, a global banking crash and the biggest European conflict since World War Two have tested markets to their core.

What can we expect?

Make no mistake, a new era of economic protectionism would present far-reaching challenges for UK large-and mid-cap shares. Reduced export demand, supply chain disruptions and soaring input costs could all follow crushing trade tariffs.

However, I’m confident that — even if global trading rules undergo a comprehensive shake-up — the FTSE 100 and FTSE 250’s sectoral diversity and broad geographical exposure (spanning developed and emerging markets) should allow them to help investors build wealth for retirement.

In fact, I believe they could deliver better returns than in years gone by as investors begin to switch away from US assets (like S&P 500 companies) and into overseas shares.

A FTSE 250 fund

Optimistic inidividuals such as myself have two ways to gain exposure to these UK share indices. They can consider selecting individual shares to buy to target a market-beating return. Games Workshop, Ashtead Group and JD Sports are just a few major names to have delivered stratospheric returns over the last two decades.

Alternatively, investors can consider plumping for investment trusts or exchange-traded funds (ETFs) that can contain hundreds of stocks. This may be a sound strategy to consider today given the major uncertainties that trade wars pose to individual companies and sectors.

The iShares FTSE 250 ETF (LSE:MIDD), for instance, spreads investors’ capital across the 200+ members of the mid-cap index. Some of its largest holdings include real estate investment trust (REIT) British Land, financial services provider IG and general insurer Direct Line.

Financial services companies make up the largest portion of this ETF, more than any other sector. In total, more than 43% of its capital is devoted to this cyclical sector. This represents a double-edged sword, as while it provides enormous growth potential, it also has the potential to perform poorly during economic downturns.

However, defensive sectors like property, consumer staples and utilities are also represented, helping to smooth out weakness in economic-sensitive industries. It also provides decent geographic diversification, with roughly 60% of earnings coming from overseas.

Making a retirement income

Whether or not investment in this ETF will create enough wealth for someone to retire on will depend on how much they will have to invest and how long they leave their money to build.

But based on the index’s performance since 2004, a FTSE 250 ETF like this could — for someone investing £300 a month for 30 years — build a £495,212 nest egg. A retirement fund at this level could deliver an £29,712 yearly income if it was then invested in 6%-yielding dividend shares.

The post Could a mix of FTSE 100 and FTSE 250 shares help investors retire comfortably? appeared first on The Motley Fool UK.

Whatever form they take, changes are almost certainly coming down the track, as new comments from the UK Chancellor Rachel Reeves suggest. And I think it could provide an opportunity for Britons to make significantly better returns over the long term.

Change is in the air

On Wednesday (2 April), Reeves affirmed her commitment to a shake-up of current ISA rules during discussions with the House of Commons’ Treasury Committee.

While Reeves said she recognises “the importance of cash for a lot of people“, she added that “I think reform would be worthwhile and that’s what we’re looking at at the moment“.

The Chancellor has spoken previously of boosting Britons’ appetite for investing in shares, giving the economy a boost while simultaneously providing individuals with a better return on their money.

While describing the tax benefits of the Cash ISA, Reeves added yesterday that “I do want to look at the balance [between saving and investing], because I think sometimes it’s a disservice to people saving“. She noted that when factoring in inflation, cash savers have in recent years experienced “erosion in the value of [their] savings in real terms“.

Best of both worlds

I hold a Cash ISA myself, so I’m hoping Chancellor Reeves resists radical changes to current rules. But then I also buy UK and overseas shares and other assets with a Stocks and Shares ISA and a Self-Invested Personal Pension (SIPP), so I can understand the logic behind her plans.

Just a quarter of people in the UK currently own shares versus around 60% in the US. As a result, millions of Brits are missing an opportunity to build a healthy nest egg for their retirements.

Let’s say someone invests £400 a month in a Cash ISA for 25 years. If they manage to secure a 4% interest rate over the period, they’d have £205,651 to show for it by the end.

Now let’s consider if they put £300 in a Stocks and Shares ISA and £100 in that Cash ISA instead. If they achieved a realistic average annual return of 8% on their share investments, they’d be sitting on a superior £336,720 across both ISAs.

Stock markets often experience periods of volatility, the kind of which we’re currently seeing. But over time, they’ve proven an excellent way for investors to build wealth.

Reducing risk

While buying shares is riskier than holding cash, individuals can reduce this by investing in trust and funds (I own several in my own portfolio).

Take the iShares FTSE 250 ETF (LSE:MIDD). This exchange-traded fund (ETF) spreads investors’ capital across hundreds of UK mid-cap shares like Direct Line, ITV, and Currys.

This in turn can substantially reduce the impact of company- and/or industry-specific problems on an investor’s overall returns.

Over the last 21 years, this FTSE 250 has delivered an average annual return of 8%. Its focus on UK shares means it offers less diversification that more global funds. But I still think it would be worth a close look today.

While I believe cash plays a vital role in any portfolio, I believe riskier assets like shares, trusts, and funds should also be considered as part of any retirement savings plan.

The post With Cash ISA changes coming, could now be the time to consider buying shares? appeared first on The Motley Fool UK.

By investing in dozens, hundreds, or even thousands of stocks, these financial vehicles help individuals reduce risk and gain exposure to myriad market opportunities. That can be a great package in exchange for what is usually a modest annual management fee.

What’s more, UK investors don’t have to pay Stamp Duty when investing in an ETF. This tax is applicable to all UK shares that aren’t listed on Britain’s Alternative Investment Market (AIM) index.

Breakneck market growth means British share investors have hundreds of such funds to choose from today. Here are three I think could help investors build a balanced portfolio of growth, dividend, and value stocks.

Growth

Purchasing growth shares can deliver substantial capital appreciation over the long term. This is because companies that deliver above-average earnings growth also tend to enjoy spectacular share price growth.

The iShares FTSE 250 ETF (LSE:MIDD) is one fund growth investors may wish to consider. As its name and ticker imply, it’s focused on tracking the performance of the FTSE 250 index of UK shares.

The reasoning is that mid-cap shares like the ones this ETF holds have greater growth prospects than mature blue-chip shares, and thus the potential to rise more sharply in value. Names here include defence business Babcock International, emerging markets bank Lion Finance, and tech-focused fund the Allianz Technology Trust.

While it’s popular for its growth potential, this fund is no slouch when it comes to dividends either. Its 12-month trailing dividend yield is a healthy 3.1%.

Be mindful, however, that growth-focused funds like this could underperform during economic downturns.

Value

Like growth stocks, value shares are also popular because of their long-term price potential. The theory is that cheap high-quality companies can appreciate sharply in value as the market eventually recognises their worth.

To this end, the Xtrackers MSCI World Value ETF searches for marked-down shares based on formulae including price-to-book (P/B), forward price-to-earnings (P/E), and enterprise value-to-cash flow from operations (EV/CFO).

I like this ETF because of its wide geographical diversification. UK shares account for 9.2% of the fund, with companies in the US, Japan, and a large selection of European countries contributing to a well-balanced portfolio across developed markets.

Major holdings here include US tech shares Cisco, IBM, and Intel. I think it’s worth checking out despite the threat that Chinese technology shares could pose in the future.

Dividends

For dividends, I think investors should consider the Invesco US High Yield Fallen Angels ETF. Funds like these can help investors enjoy a return even during stock market downturns, through passive income.

This fund has a long history of offering market-mashing dividend yields. This is thanks to its focus on holding below-investment-grade bonds from businesses including Paramount Global, Kohl’s, and CVS Health.

Today the fund’s forward dividend yield is a large 6.9%.

The debt securities it invests in carry a higher risk of default. However, the fund aims to reduce this risk on overall returns with a large range of holdings (85 in total).

The post Growth, dividends, and value! 3 top ETFs to consider for a balanced UK shares portfolio appeared first on The Motley Fool UK.

There’s also talk that the £20,000 annual allowance could be trimmed back to just £4,000.

Supporters of a radical overhaul believe it could ignite investment in higher-yielding assets like shares, boosting individuals’ retirement pots while giving a leg-up to the British economy.

Rumours are certain to continue swirling ahead of next month’s Spring Statement. But following government comments this week, it appears change is coming down the tracks in some way, shape or form.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Change is coming

On Thursday (20 February), chancellor of the exchequer Rachel Reeves said: “At the moment, there is a £20,000 limit on what you can put into either cash or equities [via the Stocks and Shares ISA], but we want to get that balance right.”

Tellingly, she added: “I do want to create more of a culture in the UK of retail investing like what you have in the US to earn better returns for savers and to support the ambition to grow the economy creating good jobs right across the UK.”

Reeves’ comments would have sent a shiver down the spine of many savers. Investing isn’t for everyone, and some prefer the security and the simplicity of just holding cash on account instead of buying shares, trusts and funds.

Embracing opportunity

As a Cash ISA holder myself, I’m hoping the chancellor resists wholesale changes to this popular product. I don’t fancy having to pay tax on the interest my savings generate.

But any modifications might not be the disaster some Cash ISA users fear. It may even provide the opportunity that the chancellor believes could supercharge all of our retirement funds.

And if done the right way, Britons can embrace this new reality without burdening themselves with too much risk.

Diversifying for safety

By holding a diverse selection of shares, investors can greatly reduce the danger to their hard-earned cash. A portfolio of, say, 10-15 shares across different sectors can balance risk, provide exposure to a multitude of investing opportunities, and deliver a stable return across the economic cycle.

A simpler way to diversify is by buying an investment trust or an exchange-traded fund (ETF) that invests in a basket of assets. The iShares FTSE 250 ETF (LSE:MIDD) is one such fund that risk-averse individuals may wish to consider.

The fund invests across the whole of the FTSE 250 index. So it has holdings in a wide spectrum of companies including retailer B&M, broadcaster ITV and insurance provider Direct Line.

Funds like this aren’t totally without risk and may fall during broader market downturns. But over time they’ve also proved to be effective ways to build wealth in a low-risk way.

FTSE 250 funds like this one have provided an average annual return of around 9% in the last 20 years. That’s also higher than the return Cash ISAs have delivered over the same timeframe.

I believe it’s wise to retain some cash held in a savings account, regardless of any tax liabilities on the interest. But with changes to the Cash ISA likely approaching, now could be a good time for us to explore additional (and potentially superior) ways to grow our money.

The post Worried about the future of the Cash ISA? Consider investing like this for potentially great returns appeared first on The Motley Fool UK.

Having said that, not all ISAs are created equally. Put simply, the difference in returns one can expect to make from a Cash ISA and a Stocks and Shares ISA is colossal.

And over time, the choice I make between these two can have a significant impact on my standard of living in retirement.

Cash vs shares

Holding money in a savings account has some big advantages, no doubt. It’s hassle free — savers don’t need to trouble themselves with researching and then buying shares, trusts, funds, or other exchange-traded assets.

On top of this, cash savings offer security, as they are immune to the volatility of stock markets.

Having said that, these benefits come at a huge price. According to AJ Bell, the average rate of return for a Cash ISA over the last 10 years is 1.2%.

To put that in context, the corresponding return on a Stocks and Shares ISA towers over this, at 9.6%.

Let’s see the difference these differences could make on an investor’s wealth-building capabilities over the long term.

If someone was to invest £300 in a Cash ISA each month, they would — after 30 years — have £129,921 in their retirement fund. That’s far below the £622,924 that a Stocks and Shares ISA could have made over the same period.

A top fund

As I say, a Cash ISA allows individuals to essentially eliminate capital risk and volatility. Yet it’s critical to note that Stocks and Shares ISA holders can also, with the right approach, effectively manage risk to their money.

This can be done by building a balanced portfolio of shares spanning different industries, sub-sectors, and geographies.

A quick and easy way to achieve this can be by buying an exchange-traded fund (ETFs) that holds a basket of assets. Based on past performance, the iShares FTSE 250 ETF (LSE:MIDD) could be a top one to consider.

Since its creation almost 21 years ago, this fund’s delivered an average annual return of 8.5%. Combined with some ‘riskier’ individual shares, investors could have a good chance of hitting (or even exceeding) that 9.6% Stocks and Shares ISA average return.

This iShares ETF provides investors with attractive growth and dividend potential. Its focus on mid-cap stocks has produced healthy capital gains driven by earnings expansion. A forward dividend yield above 3% also provides a healthy passive income.

At the same time, its 250-odd holdings spanning sectors like financial services, consumer goods, and real estate help to diversify risk by reducing exposure to any single company or industry.

The fund this can still dip when economic conditions worsen and broader stock markets dip. But while past returns aren’t a reliable guide to the future, I’m optimistic it will keep providing a Cash ISA-beating return over the long term.

The post Looking to get ‘ISA rich’? Here’s one top strategy to target huge wealth appeared first on The Motley Fool UK.