I opened my first Stocks and Shares ISA last year, aged 27.
According to finance gurus, I should have already saved one year’s salary by 30 if I want to arrive at retirement with a plush nest egg.
It’s safe to say that I haven’t hit that target yet. And I’m not alone: in fact, 40% of adults under 30 have zilch saved up.
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But by saving just £10 a day, my calculations show I could go from zero to retiring with £1m in the bank.
Choosing the right vehicle
I would drip-feed that £10 a day into a Stocks and Shares ISA.
This type of account allows regular punters like me to buy shares in some of the finest companies in the world – like Apple, Microsoft, and AstraZeneca. Historically, 8%-10% has been the typical annual stock market yield 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 I’d see in this account are linked to interest rates, which are 4% currently. The advantage here is I would avoid the type of volatility that is standard in the stock market.
Let’s run the numbers and watch how my £10 per day could grow in both types of accounts.
The power of compounding
Saving £10 a day could get me to £1m before I retire – even starting from nothing. However, I’d have to do it in a Stocks and Shares ISA.
The FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – has historical annual gains of about 8%. On the other hand, the FTSE 250 – the 101st to the 350th largest companies – has returns of about 10%. I took a 9% annual return as the basis of my calculations.
As the table below shows, in a Stocks and Shares ISA, I could smash through the million-pound mark by the time I reached 70, setting me up for a comfortable retirement.
| Years investing | Cash ISA (3%) | Stocks and Shares ISA (9%) |
| 5 | £19,770 | £21,844 |
| 10 | £43,822 | £55,454 |
| 20 | £108,690 | £186,734 |
| 30 | £204,710 | £497,523 |
| 40 | £346,843 | £1,233,271 |
However, if I’d been just as thrifty but saved into a Cash ISA for those 40 years, I’d still be a long way off my target.
Depressingly, it would take 64 years before I reached £1m under the assumed 3% rate of return in a Cash ISA.
An extra push
If I wanted to hit the one-million mark even sooner, I could try investing in individual stocks.
For example, if I’d invested in Alphabet in 2005 I’d have netted 2,000% returns up to now. 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 dud instead of a diamond and lose all my money.
Shooting for a million?
I’m not stressing about getting to £1m in reality.
My philosophy is to diligently keep putting spare cash away in my Stocks and Shares ISA.
I’ll let the magic of compound interest do the rest.
