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The Stocks and Shares ISA offers terrific advantages for Brits looking to build long-term wealth. Like the Self-Invested Personal Pension (SIPP), it protects investors from having to pay capital gains or dividend tax.
I myself hold both a Stocks and Shares ISA and a SIPP. I also hold cash savings in a Lifetime ISA and a Cash ISA, with the former giving me a handy £1 government top-up for every £4 I myself deposit.
This mish-mash of products is subject to different rules on things like annual contribution allowances, withdrawal penalties, and tax treatment. This means I may be better prepared for whatever the future holds — whether that’s changes to the tax regime, a financial emergency that requires quick access to cash, or if I have a chance to retire before the State Pension age.
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.
A diversified portfolio
With these ISAs and SIPPs, I hold a mix of cash savings, alongside a broad collection of shares, investment trusts, and funds. The vast majority of my money is invested in the latter three categories, though. Despite the higher risk this strategy entails, the chance of me creating enough wealth for retirement is far greater.
By spreading my capital this way, I’m confident of achieving a long-term average annual return of 7%. That’s based on an 2% savings rate and an average return of 8% on stocks, funds, and trusts.
As I’ve brushed upon, there are no guarantees with this approach, as markets can be volatile and past performance is never a guide to future returns. But a diversified portfolio can smooth out any shocks and cut the risk of one poor performer derailing my investment goals.
Prioritising shares
I directly own about 20-25 stocks in my portfolio at any one time. These include a number of FTSE 100 heavyweights like Legal & General, Diageo, Games Workshop, and HSBC.
And the exchange-traded funds (ETFs) I own give me instant exposure to even more companies, sectors, and geographies, adding another layer of safety.
The HSBC S&P 500 ETF (LSE:HSPX) is currently my favourite such holding, and therefore my largest. It gives me exposure to hundreds of US shares, allowing me to harness powerful Wall Street companies in a lower-risk way.
Around 34% of the fund is tied up in cyclical technology shares, which creates danger during economic downturns. Still, the likes of Nvidia and Microsoft also have considerable growth potential as the digital revolution rolls on.
Besides, the fund’s significant exposure to non-cyclical shares helps balance this out. Other major holdings include healthcare business Eli Lilly and consumer staples retailer Walmart.
Since 2015, the S&P 500 has delivered an average annual return of 14%, illustrating its enormous growth credentials.
Building wealth isn’t easy and requires dedication and resolve. But I’m confident my strategy will eventually help me to retire in comfort.
