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One of the best ways for investors to target long-term wealth is to consider share investing. That’s my humble opinion, and it’s one that’s backed up by reams of research. It’s why I take every opportunity I can to add a growth or dividend share to my ISA.
Sure, stock markets can be volatile at times. But over the long term the direction is up, as the FTSE 100, S&P 500 and Nikkei‘s recent record highs show. Patient investors can use this to build an enormous nest egg for later in.
Let’s look at how investing in the stock market can be such a valuable tool to building retirement wealth. I’ll then discuss a top growth share I’m considering adding to my portfolio right now.
Building wealth
The ISA’s one of the most popular products in the UK for saving and for investing. Over time, the difference generated between the Cash ISA and Stocks and Shares ISA can be enormous, as data from Shepherds Friendly shows.
It calculated the return a £293 monthly investment would have generated over time. Here’s what it found:
| ISA type | Assumed interest rate |
5-year balance | 10-year balance | 15-year balance | 20-year balance |
|---|---|---|---|---|---|
| Stocks and Shares ISA |
5% | £20,009 | £45,687 | £78,642 | £120,935 |
| Fixed Rate ISA | 2.8% | £18,891 | £40,616 | £65,603 | £94,339 |
| Cash ISA | 1.5% | £18,267 | £37,956 | £59,177 | £82,050 |
Reducing risk
It’s my opinion that these hypothetical returns on the Stocks and Shares ISA may actually be looking a little light.
This is because the average annual return on stock market investing ranges 8% and 10%. That’s far higher than the 5% Shepherds Friendly has used.
Still, you can see the enormous shortfall that cash savers can experience compared to stock market investors. Due to the impact of compounding — where your interest earns interest over time — those saving £293 each month would miss out on even larger riches.
On the plus side, the Cash ISA provides a guaranteed return, making it much lower risk. However, share investors can substantially limit the risk they face with a diversified portfolio of growth and dividend shares spanning sectors and regions.
A growth stock on my radar
The Baillie Gifford US Growth Trust (LSE:USA) is one company I’m currently considering for my portfolio. As its name implies, it focuses on growth stocks on the other side of The Pond. It’s delivered a monster 13% average annual return over the last year.
That’s more than double the return for the broader FTSE 250.
The trust’s focus on Wall Street shares leaves it vulnerable to a fall in the US stock market. But other than that it’s pretty well diversified. The 58 holdings it has span multinational companies in the information technology, telecoms, consumer goods and healthcare sectors, among others.
On top of this, the investment trust comprises both public and private companies. So it’s been able to harness the enormous growth potential of hard-to-reach companies like Space X alongside popular growth shares including Nvidia and Amazon.
