The annual £20,000 Stocks and Shares ISA contribution allowance has been frozen since 2017. Inflation has steadily eroded its value, but it’s still generous.
Ten years ago, in August 2016, the maximum anybody could invest was £15,240. Let’s say an investor put in the full amount a decade ago and simply left it there to grow. What would it be worth today?
Obviously, it depends on how their portfolio performed. No two are the same. However, financial website Unbiased has calculated the average annual return from a Stocks and Shares ISA over the last decade and come up with an impressive 9.64%. That’s the total return, including both share price growth and reinvested dividends. That would have turned that original £15,240 into £38,254, a total return of 151%.
Equities really shine over time
Now imagine leaving that money untouched for 40 years, roughly a typical working lifetime. Assuming the same annual return, that £15,240 would grow to an astonishing £604,987.
Of course, this is only an illustration. Future returns could be lower (or higher) and inflation will erode the spending power of that money over time. What it does show is the extraordinary power of long-term compounding. Put money into quality shares, reinvest every dividend, and give your investments time to grow free of tax thanks to the ISA.
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.
At The Twelfth Magpie, our focus is on FTSE 100 and FTSE 250 shares. They’re coming into their own right now, with the FTSE 100 hitting all-time highs. The UK market still looks attractively valued compared with the US. Better still, British companies offer some of the most generous dividend yields in the developed world.
Here’s why I rate Standard Life shares
Insurer Standard Life (LSE: SDLF), formerly Phoenix Group, is one of them. It currently yields around 6%. When I bought the shares in 2024 it was closer to 10%.
The yield has fallen for the best possible reason: because the shares have done so well. They’ve climbed 37% over the last year and 69% over three. Including reinvested dividends, the total returns would be around 43% and 95%, my rough calculations suggest.
The board has increased shareholder payouts every year for a decade, but the pace of growth is set to slow. It’s planning an increase of a modest 2% a year going forwards. That will hopefully keep them sustainable.
Despite that strong run, Standard Life shares don’t look outrageously expensive, trading on a price-to-earnings ratio of 17, broadly in line with the FTSE 100 average.
There are risks. Standard Life has to keep bagging new business but faces fierce competition from FTSE 100 rivals Aviva and Legal & General Group. It has £300bn under management to cover liabilities, but a stock market crash or correction could hit that, and reduce commission-based fee income. After their strong run, the shares could quite naturally pause for breath.
But I still think this stock is worth considering as part of a balanced portfolio. And remember, all the share price growth and dividend income is free of tax thanks to the Stocks and Shares ISA.
Should you invest £5,000 in Standard Life right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Life made the list?
Harvey Jones owns shares in Legal & General Group and Standard Life.
This story originally appeared on Motley Fool
