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I opened my first Stocks and Shares ISA last year, at age 27.
According to finance gurus, I should already have a year’s salary saved by age 30 if I want to reach retirement with a healthy nest egg.
It’s safe to say that I haven’t reached that goal yet. And I’m not alone: in fact, 40% of adults under 30 have not saved at all.
But by saving just £10 a day, my calculations show I could go from zero to retiring with £1 million in the bank.
Choosing the right vehicle
I would trickle-in that £10 a day into a Stocks and Shares ISA.
This type of account allows regular gamblers like me to buy shares in some of the best companies in the world, such as Apple, Microsoftand AstraZeneca. Historically, 8%-10% has been the typical stock market annual return per year. Of course, investing in the stock market is risky, and future returns are never guaranteed.
An alternative would be a Cash ISA. The returns you would see on this account are tied to interest rates, which are currently 4%. The advantage here is that you would avoid the kind of volatility that is standard in the stock market.
Let’s break down the numbers and see how my £10 a day could grow on both types of accounts.
The power of composition
Saving £10 a day could get me to £1 million before I retire, even starting from scratch. However, you would have to do it in a Stocks and Shares ISA.
He FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – has historic annual gains of around 8%. On the other hand, the FTSE 250 – from the 101 to the 350 largest companies – has returns of around 10%. I took an annual return of 9% as the basis of my calculations.
As the table below shows, in a Stocks and Shares ISA, I could pass the million pound mark by the time I reach age 70, setting myself up for a comfortable retirement.
| years investing | ISA Cash (3%) | Stocks and Shares ISA (9%) |
| 5 | £19,770 | £21,844 |
| 10 | £43,822 | £55,454 |
| twenty | £108,690 | £186,734 |
| 30 | £204,710 | £497,523 |
| 40 | £346,843 | £1,233,271 |
However, if I had been that thrifty but saved in a Cash ISA over those 40 years, I would still be a long way from my goal.
Unfortunately, it would take 64 years before it reached £1 million at the assumed 3% rate of return on a cash ISA.
an extra push
If you wanted to hit the million mark even sooner, you could try investing in individual stocks.
For example, if you had invested in Alphabet in 2005 it would have made a net return of 2000% so far. That beats the slow and steady FTSE 100, which is up 60% over the same period.
Of course, investing in individual stocks is riskier, because I could easily choose a worthless commodity over a diamond and lose all my money.
Shooting for a million?
I’m not stressed about getting to £1 million actually.
My philosophy is to continue to diligently store the leftover cash in my Stocks and Stocks ISA.
I’ll let the magic of compound interest do the rest.
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