£12,000 in bank savings? Here’s how I’d aim to turn that into a SIPP worth £777,841

Our writer outlines how he’d consider investing twelve grand in a SIPP to target a sizeable portfolio balance later on in life.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A Self-Invested Personal Pension (SIPP) is for savers who are confident enough to manage their own investments. This DIY pension can be a great way to boost funds for retirement.

Here, I’ll show how an average sum could turn into a sizeable amount over time.

The average UK adult has just under £12,000 in cash savings, according to online sources. If I put this into a SIPP, the government will add in another £3,000 in tax relief, bringing the total contribution to £15,000.

This is how it would work:

  • My contribution: £12,000
  • Government tax relief: £3,000
  • Total in SIPP: £15,000

For higher-rate and additional-rate taxpayers, further tax relief can be claimed back via the self-assessment process.

Building a portfolio

So, let’s assume I’m a basic-rate taxpayer and I’ve now got £15k sitting in my SIPP. Next, I’d have to decide what investments to make. In other words, which shares to buy.

One thing I wouldn’t do is put all my eggs in one basket/stock. I reckon £15,000 spread evenly across six different shares would be a great start. This would provide a level of diversification.

In my own SIPP, I have a number of growth and dividend stocks, as well as a smattering of investment trusts and exchange-traded funds (ETFs).

This is how my balanced portfolio might look at first then:

  • Two growth stocks
  • Two dividend stocks
  • One investment trust
  • One ETF

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 cheap income stock to consider

A FTSE 100 dividend stock I hold and would consider again is HSBC (LSE: HSBA). The share price is up 10.5% over the past year as the banking giant has posted record profits amid higher interest rates.

However, trading at just 7.5 times earnings, the stock still appears to present tremendous value. There’s also a dividend yield of 7.2% on offer, which towers above the FTSE 100 average.

One concern here is China, the Asia-focused bank’s biggest growth market. The world’s second-largest economy has been misfiring since Covid lockdowns, and there’s a risk things could take a turn for the worse. Rising US-China tensions could also be a headache for HSBC.

Long term though, I’m bullish on its prospects across Asia. This region is home to a booming middle class and a rising number of wealthy individuals.

I think the bank’s pivot eastwards will eventually pay off in the shape of higher dividends and (hopefully) a higher share price.

The beauty of SIPPs is that I can’t start taking money out until I’m at least 55, rising to 57 in 2028. So for most investors, this gives plenty of time for stocks like HSBC to fulfil their ultimate potential.

Aiming even higher

Naturally, this makes SIPPs incredibly powerful vehicles to allow compounding to work its magic (earning interest upon interest).

If I can generate an average of 10% return over the long run, this would see my £15,000 transformed into £261,741 after 30 years.

Of course, my return might end up lower or higher than 10% and dividends aren’t guaranteed. But it still shows what’s possible given enough time.

If I decided to invest a further £200 a month (which the government tops up to £250), my SIPP would grow to £777,841, assuming the same 10% return.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Ben McPoland has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »