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It’s no secret that the earlier one starts out on their investing journey, the better their chances are of building a large nest egg for later life. Putting money to work sooner in a Stocks and Shares ISA amplifies the compounding effect, where previous returns generate further returns, accelerating long-term growth.
Unfortunately millions of investors regret not taking steps earlier, as research from Alliance Witan shows.
According to the investment trust, a whopping 59% of investors wished they’d begun investing at an earlier age. And unfortunately this means many investors are playing catch-up — 23% of those quizzed now plan to increase the amount they invest.
Times are tough, and the enduring cost-of-living crisis is impacting peoples’ chances to invest across all age groups. But this doesn’t necessarily mean having to regularly spend a fortune to build a robust retirement fund.
Here’s how a 30-year-old could aim to build wealth for later life in an ISA.
Cash vs stocks
I believe the use of these investor-friendly products is essential. The tax savings on capital gains, dividend income, and interest can be huge over the long term. This in turn gives investors more financial firepower to bolster the compounding effect on their portfolios.
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.
However, it could be a mistake to put too much money in a Cash ISA over a Stocks and Shares ISA. Cash ISAs provide a guaranteed positive return, but the long-term rate of return is far lower (at 1.2% versus the investing ISA’s average 9.6%). But if an investor puts all their money in a Cash ISA, it could compromise their chances of creating wealth.
Targeting a million
Let’s say we have a 30-year-old who puts 80% of their monthly savings in a Stocks and Shares ISA and the rest in the cash equivalent. Based on these figures, they could have a £1m retirement fund by the time they hit their State Pension age of 68.
But how much would they have to save and invest each month to hit this target? Thanks to the long-term growth potential of the stock market, someone who gives themselves three decades or so to save for retirement doesn’t need to set aside massive amounts of cash.
Our 30-year-old could reach their £1m retirement nest egg, based those long-term returns, with just £263 a month. Remember that past performance isn’t a guarantee of future returns.
Game on
Investors have thousands of individual shares, investment trusts and funds to choose from to hit this target. Take Games Workshop (LSE:GAW) for instance, a share I hold in my ISA to capitalise on the booming fantasy tabletop gaming market.
The hobby isn’t everyone’s cup of tea. But it’s huge globally and growing rapidly, helped by the growth in social media and Games Workshop’s own expansion drive. The FTSE 100‘s company’s latest financials showed core revenues up 14.2% in the 12 months to May.
Royality revenues are also rising sharply as the firm ramps up licensing of its intellectual property. And with Amazon making TV and film content based on its hugely popular Warhammer 40,000 franchise, I think royalties could shoot through the roof.
Games Workshop’s share price has risen roughly 41% a year over the last decade. Sales could disappoint during economic downturns. But it’s still a top share to consider in an ISA, one of many that UK investors can choose from today.
