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With a Stocks and Shares ISA (and Lifetime ISA), investors can choose from thousands of UK shares and overseas equities. They can also choose to fill their portfolio with a broad selection of trusts, funds, and bonds.
This opens up a broad range of opportunities for Britons to build wealth for the future. Let me show you one way that a £500 investment could eventually lead to a retirement income (excluding the State Pension) of around £27,000.
Building an ISA
My strategy for you to consider involves building a diversified portfolio of blue-chip US and UK shares and British mid-cap growth stocks.
Here’s an example of what an ISA containing FTSE 100, FTSE 250 and S&P 500 shares might look like:
| Stock | Sector | Index |
|---|---|---|
| HSBC | Banking | FTSE 100 |
| Chemring | Defence | FTSE 250 |
| Nvidia | Semiconductors | S&P 500 |
| Vodafone | Telecommunications | FTSE 100 |
| ITV | Media | FTSE 250 |
| Berkshire Hathaway | Financial services | S&P 500 |
| Barratt Redrow | Housebuilding | FTSE 100 |
| Hochschild Mining | Mining | FTSE 250 |
| Pfizer | Pharmaceuticals | S&P 500 |
| M&G | Financial services | FTSE 100 |
| Premier Foods | Food | FTSE 250 |
| Caterpillar | Industrials | S&P 500 |
With a portfolio like this, I think an investor could be confident of making an average annual return of 7.5%. That’s based on these indices’ average yearly returns of the last 10 years, which stand at:
- 6.4% for the FTSE 100.
- 4.1% for the FTSE 250.
- 11.9% for the S&P 500.
Past performance isn’t always a reliable guide to future returns. And looking ahead, a potential trade revolution led by US President Donald Trump could adversely impact investor profits.
However, the stock market’s resilience and ability to rebound from previous disruptive events (including world wars, global pandemics and banking crises) gives me confidence in this portfolio’s potential. I’m confident a collection of British and America companies spanning different sectors and geographies, and providing a blend of growth potential and passive income, can deliver strong returns over time.
A FTSE 100 favourite
Barratt Redrow‘s (LSE: BTRW) a share I hold in my own portfolio. Near-term earnings could come under pressure if the UK economy flatlines and interest rates remain stubbornly high. Both would have serious consequences for homebuyer affordability.
However, I’m optimistic this share will deliver solid returns over the long term when macroeconomic conditions normalise. As the UK’s largest housebuilder, it has the scale to capitalise on government plans to supercharge construction rates (up to 300,000 new homes have been earmarked each year through to 2029).
The FTSE company has plans to build 22,000 homes a year over the medium term, up from the 16,800 and 17,200 properties it’s targeting for this year. It’s a goal supported by a gigantic landbank of almost 98,600 plots.
Barratt shares are down 12% over the last five years, which I think represents an attractive opportunity for long-term investors to consider.
A near-£27k passive income
If an investor could achieve a 7.5% average annual return with the portfolio above, they could — with a £500 monthly investment — build a Stocks and Shares ISA worth £673,723 after 30 years. This would then provide a passive income of £26,949 for a couple of decades if 4% were to be drawn down each year.
