The number of people buying UK shares has exploded in recent decades. This is a reflection of the poor returns that have been on offer from traditional financial products, like savings accounts.
The boom in share investing isn’t just a British phenomenon however. All over the world, people are turning to stock markets to create long-term wealth.
Research into internet searches by CMC Markets illustrates just how strongly investor interest has ramped up. It says that usage of the search term ‘how to start trading’ has soared 203% worldwide since 2004.
Searches for ‘how to get into trading’ have increased 178% during the past five years too. And searches for ‘trading tips’ have leapt 195% over the period.
9.64% is the magic number
It’s no surprise to me that interest in share investing continues to rocket. I remain an active buyer of UK stocks, even during these uncertain economic times.
Regular interest rate hikes since late 2021 have boosted the returns that savings account customers can receive. Yet the money they can make with something like a Cash ISA remains much lower than what they might by buying London Stock Exchange shares.
The best-paying, no-notice Cash ISA on the market currently offers an 3.4% interest rate. That product is provided by Chip, according to price comparison website Moneysupermarket.com.
It’s a good rate compared to the average that cash savers have had to endure over the past decade. However, it is still far lower than the return a long-term share investor can realistically expect to enjoy.
During the past 10 years, Stocks and Shares ISA investors have made an average annual return of 9.64%. That’s according to financial services provider Moneyfarm.
Top returns
This is thanks to the miracle of compounding. In simple terms, this involves reinvesting dividends so that interest on an initial investment can be made as well as on the shareholder payouts they receive.
Let me show you how. We’ll assume that Chip continues to offer than 3.4% interest rate for the next 20 years (an unlikely scenario, given that interest rates look set to start falling again from late 2023).
If someone invested £300 a month in their Cash ISA they would, after two decades, have just below £100,770 sitting in their account.
Now let’s say they used that £300 to buy UK stocks in a Stocks and Shares ISA instead. They’d have generated just shy of £197,950 if the rate of return matched that of the last decade (which isn’t guaranteed, of course).
That’s almost double what they’d have made in that Cash ISA. And the longer time goes on, the more the difference between those products grows.
Time to invest!
So my tactic at the moment is to continue building my shares portfolio with any spare cash I have. I have exposure to bonds, and I hold capital in a savings account. Such diversification helps me to reduce risk. But the lion’s share of my money is dedicated to UK share investment.
And I think now is a great time to add to my portfolio. Following recent market volatility, I can buy some top-quality stocks at knock-down prices.
