Cash ISA is extremely popular. Too popular in my opinion. While this is a great home for short-term savings and an emergency cash buffer, it is not a place to build long-term wealth for retirement. A Stocks and Shares ISA will do a much, much better job of this.
And I’m not the only one who says so. The Treasury agrees. That’s why next April it plans to cut the Cash ISA allowance for under-65s from £20,000 to just £12,000. The Stocks and Shares ISA Supplement will remain at 20 thousand pounds for everyone. Why is he doing this? Encouraging more people to take advantage of the long-term wealth-building potential of stock markets.
Is stock really outperforming cash?
Over the last decade, the average Cash ISA has paid just 1.21% a year, finance service Selfless says. By comparison, the average annual return on a Stocks and Shares ISA after dividends was reinvested was 9.64%.
So £20,000 saved in an average Cash ISA will be worth £20,242 after a year. In an average Stocks and Shares ISA this would rise to £21,928. That’s 1,686 pounds more. I admit that this is a bit of a stupid comparison. In this brief time frame, the Stocks and Shares ISA could go anywhere. It can easily go up or down by as much as 20% or more. Cash no.
This short-term volatility that’s a price worth paying given the long-term wealth-building power of stocks. Over a typical investment period of 30 years or longer, the difference is huge.
Taking the above results into account, the Cash ISA will turn £20,000 into £28,690. But the Stocks and Shares ISA would completely transform it into £316,301.
A popular way to invest is to buy a spread FTSE100 stocks that offer both share price growth and dividend income. Insurer and asset manager Legal and General Group (LSE: LGEN) currently offers the highest trailing yield in the entire blue-chip index, a staggering 7.6%. This is compounded by any escalate in share prices. I bought it for my SIPP three years ago.
Does Legal & General stock also have growth potential?
Ideally, these dividends should be reinvested when you are of working age to build your position, and then taken as income in retirement to top up your State Pension and any other savings you have.
Dividend income should escalate over time, helping to protect its value against inflation. Over the last 15 years, Legal & General has increased its dividend by an average of 10.7% per year. However, this is not guaranteed. To do this, the company must generate enough cash.
Unfortunately, Legal & General’s stock has disappointed recently. In fact, their ratings will remain at similar levels throughout the next decade. But there are signs of pickup. The stock is up 12.7% over the past year. Combined with final income, the total annual return is over 20%.
Legal & General operates in a hard and competitive market. If we were to experience a wider stock market crash, it could hit £1.2 trillion of assets held, reducing fee income. No stock is risk-free. However, I think that ultra-high yields and the prospect of a recovery in share prices make it worth considering today.
Is it worth investing £5,000 in Legal & General Group Plc now?
If investing expert Mark Rogers and his team have stock advice, it can pay to listen. After all, Twelfth Magpie’s flagship Share Advisor newsletter, which it has run for almost a decade, provides thousands of paying members with the best share recommendations from across the UK and US markets.
Mark believes there are 6 standout stocks that investors should consider buying right now. Want to check if Legal & General Group Plc is on the list?
Harvey Jones owns shares in the Legal & General Group.
