Latest news with #Self-InvestedPersonalPension
Yahoo
19-04-2025
- Business
- Yahoo
Prediction: 10 years from now, £5,000 invested in a SIPP could be worth…
Leveraging the power of a Self-Invested Personal Pension (SIPP) is a fantastic way to build retirement wealth. This special type of investment account not only grants access to the stock market but also provides powerful tax advantages that can propel a portfolio much higher than a regular trading account. So with that in mind, if an investor had £5,000 today, how much money could they have in the next decade? Just like a Stocks and Shares ISA, SIPPs eliminate capital gains and dividend taxes from the equation. However, unlike an ISA, they also provide tax relief. This refund from the government depends on the income tax bracket an investor sits in. But assuming an individual is paying the 20% Basic rate, they're entitled to a 20% tax refund on all deposits made. So with £5,000 going into a SIPP (after tax relief) this capital automatically gets topped up to £6,250. With the money now in a SIPP, let's explore the potential gains. Ten years is a good chunk of time for compounding to begin working its magic. However, the amount of money ultimately depends on the average investment return an investor earns. 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. When relying on index funds, the FTSE 100 has historically offered around 8% a year, while the S&P 500's closer to 10%. For those happy with a bit more volatility and exposure to the US tech sector, the Nasdaq 100 steals the show with a 14% total gain. Return 8% 10% 14% Estimated Portfolio Value After 10 Years £13,873 £16,919 £25,140 Relying on passive index funds is a proven strategy for building long-term wealth. But this approach to the stock market does have its limits. Historical performance isn't guaranteed to continue. In fact, the FTSE 100 and FTSE 250 have both lagged their typical performance over the past 15 years, leaving investors with considerably less than expected. The same may occur for the US stock indices over the next decade. To counter this, investors can pick stocks directly. This requires a much more hands-on approach. But it also opens the door to potentially market-beating returns that pave the way for considerably greater returns during periods of lacklustre index performance. A prime example of this would be Halma (LSE:HLMA). Regardless of economic conditions, demand for health & safety products remains robust. Subsequently, the business has an impressive track record of exceeding analyst expectations – a trend that continues even in 2025. The impact of Halma's critical role in the value chain in the healthcare, environmental, and safety sectors is clear when looking at the stock price. Over the last 15 years, shareholders have reaped an impressive 16.5% annualised return, outpacing the Nasdaq and even delivering lower volatility at the same time. For reference, over 10 years, that's enough to grow a £6,250 SIPP to £32,180! Of course, it hasn't been a complete risk-free journey. Apart from trading at a fairly premium valuation today and the tight regulatory environment in which it operates, the business is highly acquisitive. Underperforming acquisitions can turn into expensive mistakes capable of compromising the balance sheet. So for investors considering this business today, these risk facts must be taken into account. The post Prediction: 10 years from now, £5,000 invested in a SIPP could be worth… appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc. 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. Motley Fool UK 2025
The Independent
10-04-2025
- Business
- The Independent
How much do I need to save to become a Self-Invested Personal Pension millionaire?
Imagine achieving your retirement dreams and becoming a Self-Invested Personal Pension (SIPP) millionaire. It's a great goal, but is it really achievable for everyday pension investors? According to ONS data, there are currently around 1.1m pension millionaires in the UK, with 46,000 having a staggering £3m or more - and many started out small. Using a SIPP to build pension wealth could be a great option if you want to supplement your workplace pension. A SIPP is a type of personal pension that allows you to choose your own investments and offers a wide range of investing options. Here, we reveal how much you need to save to become a pension millionaire by the time you reach retirement. 1. Start early Building wealth takes time, so it's no surprise that the younger you start, the easier it is to become a SIPP millionaire. We're living through volatile times, but investors can take heart because historically, stock markets significantly outperform cash over time. The longer you have to invest, the more time your investments have to grow. The magic of investment compounding can help your wealth to snowball, meaning that later growth builds on previous growth. The table below from Fidelity shows how much you need to save and invest in your pension monthly to reach £1m by the time you reach age 65. The figures assume a 4.5 per cent investment growth annually and that you increase your contributions by two per cent each year in line with inflation. Ed Monk, Associate Director at Fidelity says, 'Building a £1m pot of investments will clearly be tough for most of us, but the value of a target like that is that you can still achieve great things just by attempting to hit it. The numbers show the value of starting your saving and investing early. 'The amounts required each month to hit £1m by age 65 rapidly increase as the starting age is delayed, because contributions have fewer years to benefit from investment growth. It's a lesson in why it can be a mistake to put off your investing until later in life.' Getting smart with your investing will give you the best chance to maximise your returns, and make it easier to build significant wealth over time. Monk comments, ' For those for whom retirement is still a long way off - at least 10 years - it can make sense to invest SIPP money entirely in shares, where long-term returns have historically be better but with extra volatility along the way. If investments do fall in the short term there is time for them to recover, while any new contributions you make will buy more assets at lower prices.' What has happened in stock markets over the past week is a good case in point. 'By picking a fund that invests globally, you will be buying assets from many different regions of the world, reducing the risk that trouble in one market means your whole portfolio suffers,' Mr Monk added. 'A simple, low-cost way to do that is through a global index tracking fund, like the Legal & General Global Equity Index Fund, which gives exposure to markets across the globe for just 0.13 per cent.' He explains that those who are closer to retirement might want to consider a lower risk option like bonds and cash funds. 'If you envisage using all your money to buy an annuity within five years, for example, it's best to play it safe with only a minimal exposure to shares. Those hoping to leave their money invested after they retire may want to hold a slightly higher weighting to stock markets - about 20 per cent is sometimes advised. 'For lower risk options, the Colchester Global Bond Fund is an active fund giving exposure to government bonds that can act as a diversifier from shares, while the Fidelity Cash Fund is a popular choice producing a cash-like return with little usual risk.' 3. Maximise tax relief Using a pension to build wealth is a great way to maximise your returns, and making the most of tax relief might help you save even more. Tax relief is especially generous for higher tax taxpayers who save £40 tax for every £100 they pay into their pension, while basic rate taxpayers save £80 on a £100 pension contribution. But it's possible to lose out on tax relief, because you won't always get everything owed automatically. Higher rate taxpayers only get 20 per cent tax relief paid automatically into a SIPP and need to claim the remaining 20 per cent through their tax return. Mr Monk says it's important to take maximum advantage of tax-breaks on your investing where you can. He comments, 'If saving for retirement, the value that can be added from tax-relief is sizeable and could add up to many tens of thousands of extra pensions savings by the time you retire'. When investing, your capital is at risk and you may get back less than invested. Past performance doesn't guarantee future results.
Yahoo
18-03-2025
- Business
- Yahoo
Why isn't everyone aiming for £37m in stocks and shares?
My one-year-old daughter has a Junior ISA and a SIPP (Self-Invested Personal Pension). These are accounts and tax wrappers that allow us to invest in stocks and shares and leverage the power of compounding for long-term growth. But what about this £37m figure? Well, the maths tells us that it's possible. In fact, this is a calculation I've run for my daughter's SIPP: A total of £320 in monthly contributions, consisting of £240 from my own funds and £80 from HRMC. I've accounted for this figure increasing by 3% annually, assuming a rising threshold. A 12% annualised growth rate, which is about the rate of growth I think I can achieve for her. Other investors may wish to take a slightly lower figure. As of 2028, the minimum age to withdraw from a SIPP is 57 years. So, I've accounted for 57 years of investing and reinvesting. Adding all this together, we come to the figure of £37m. As we can see from the graphic below, most of the growth is coming towards the end of the period. That's compounding. Compounding really comes into its own when we invest for the very long run. I appreciate this requires a very long-term perspective. But I'm surprised more people don't do this. 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. This isn't a new strategy. In fact, Warren Buffett's wealth is a testament to the power of compounding and time. At age 30, his net worth was $1m, growing to $25m by 39. By 56, he became a billionaire, and by 66, his wealth surged to $17bn. Remarkably, 99% of his wealth was accumulated after age 50, with $84.2bn earned post-50 and $81.5bn after 65. Today, he's worth $160bn. Buffett's strategy of reinvesting profits and focusing on long-term investments allowed his wealth to snowball over decades. For example, his $1bn investment in Coca-Cola in 1988 grew to over $20bn through reinvested dividends. This exponential growth underscores the importance of starting early and letting compounding work over time. With Buffett in mind, one stock to consider for long-term investing is his Berkshire Hathaway (NYSE:BRK.B) conglomerate. Berkshire Hathaway, under Warren Buffett's leadership, has consistently demonstrated its ability to deliver long-term growth through disciplined investing and compounding. From 1965 to 2023, the company achieved a compound annual growth rate (CAGR) of 19.8%, significantly outperforming the S&P 500's 10.2% over the same period. Moreover, its diversified portfolio, spanning insurance, utilities, and railroads, provides stability and resilience across economic cycles. This is why it was one of the first investments in my daughter's SIPP. In 2024, Berkshire reported more positive results, supported by strong insurance operations and a $334bn cash reserve. This financial strength allows Berkshire to capitalise on market opportunities, such as its recent investments in Japanese trading houses. However, risks include its reliance on Buffett's leadership, with succession concerns looming. Additionally, its massive size may limit agility in volatile markets, although its cash position may suggest the opposite. Despite these challenges, Berkshire's proven track record, wide economic moat, and conservative capital allocation make it an enticing proposition for long-term investors. Analysts maintain a Buy rating, with a 12-month price target of $511, reflecting confidence in its continued growth. The post Why isn't everyone aiming for £37m in stocks and shares? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool James Fox has positions in Berkshire Hathaway. The Motley Fool UK has no position in any of the shares mentioned. 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. Motley Fool UK 2025 Sign in to access your portfolio
Yahoo
23-02-2025
- Business
- Yahoo
If a 45-year-old puts £700 a month into a Stocks and Shares ISA, here's what they could have by retirement
Investing within a Stocks and Shares ISA is one of the most effective ways to build wealth in the UK. With a regular savings plan and a sound investment strategy, an investor can potentially build a lot of capital over the long run with these accounts. Here, I'm going to look at how much money a 45-year-old could potentially build up by retirement if they were to put £700 a month into this type of ISA. Let's dive in. There's no guaranteed return on offer with the Stocks and Shares ISA. This is due to the fact that it's an 'investment vehicle' and not an investment. With a proper investment strategy however, it's not unreasonable to expect a return of 8% a year (after fees) over the long term. And with that kind of return, money can grow quickly due to the power of compounding (earning a return on past returns). Invest £700 a month starting at age 45 and earn an 8% average annual return on the money, and you'd have around £385,000 by age 65, or £515,000 by age 68. That could be a nice little retirement bonus to sit alongside a work pension or Self-Invested Personal Pension (SIPP). It's worth pointing out that all gains generated inside a Stocks and Shares ISA are tax-free. So the investor wouldn't have to pay a penny of tax on this money – a great result. 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. Now, I mentioned an investment strategy above and this is crucial if one wants to achieve attractive returns within a Stocks and Shares ISA. Invest without a plan and/or in the wrong assets, and long-term returns could be well be below 8% year (they could even be negative). The key to achieve strong long-term returns is to build a diversified investment portfolio that has exposure to many different businesses. By doing this, you can mitigate the risk of any single company's failure significantly impacting your returns while simultaneously increasing the likelihood of capturing gains from the market. The good news is that building a diversified portfolio is super easy today. With index funds, you can literally do it in minutes. These funds typically offer exposure to thousands of stocks. So they offer instant portfolio diversification. A good example of an index fund is the iShares Core MSCI World UCITS ETF (LSE: SWDA). This is a global investment fund that offers exposure to around 1,400 stocks. With this product, an investor gets exposure to all the big names in the stock market such as Apple, Amazon, and Nvidia. However, they also get exposure to smaller companies such as CrowdStrike, London Stock Exchange Group, and Sage. I'll point out that in recent years this ETF has returned far more than 8% a year. Over the 10-year period to the end of January, for example, it returned 174% (in US dollar terms) which is about 10.6% a year. That said, past performance is no indicator of future returns. And if the world was to experience an economic slowdown, or the Technology sector (which has a large weighting in the ETF) experienced some weakness, this fund could underperform. I believe it's a good product to consider though. In my view, this ETF could be an excellent foundational investment for a Stocks and Shares ISA. The post If a 45-year-old puts £700 a month into a Stocks and Shares ISA, here's what they could have by retirement appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Edward Sheldon has positions in Amazon, Apple, CrowdStrike, London Stock Exchange Group Plc, Nvidia, and Sage Group Plc. The Motley Fool UK has recommended Amazon, Apple, CrowdStrike, Nvidia, and Sage Group Plc. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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. Motley Fool UK 2025 Sign in to access your portfolio
