Long term ISA returns
Discussion
Prompted by Leo's comment elsewhere about 30 years of investing I made a rudimentary spreadsheet looking at theoretical ISA value. In other words, if someone has been maxing out their ISA contributions every year since 1999 and achieving 10% compound returns how much should they have today?
My answer was they would have invested c.£370,000 and now be holding c.£1,300,000 - a tax free gain of nearly £1million.
Not bad at all.
And then I plugged in ten years of the previous PEP (Personal Equity Plan) regime as well, that's from 1990 to 1999, and the figures doubled!
c.£60,000k of PEP investment grown to c.£1,250,000 today.
If someone's been in the game for 35 years that's potentially £430,000 gradually invested and then grown to more than £2,500,000 today. It really rams home the benefit of long term ISA investing.
My answer was they would have invested c.£370,000 and now be holding c.£1,300,000 - a tax free gain of nearly £1million.
Not bad at all.
And then I plugged in ten years of the previous PEP (Personal Equity Plan) regime as well, that's from 1990 to 1999, and the figures doubled!
c.£60,000k of PEP investment grown to c.£1,250,000 today.
If someone's been in the game for 35 years that's potentially £430,000 gradually invested and then grown to more than £2,500,000 today. It really rams home the benefit of long term ISA investing.
Just to add - although none of the above figures are inflation adjusted the shape of the contribution history would show the vast majority of investment being made relatively recently. Hence the overall return may look relatively modest, but it's all about timing. In very round numbers,
1990 to 1992 - contributions of c.£3,000 p.a.
1993 to 2009 - contributions of c.£7,000 p.a.
2010 to 2014 - contributions of c.£11,000 p.a.
2015 onwards - contributions of c.£20,000 p.a.
1990 to 1992 - contributions of c.£3,000 p.a.
1993 to 2009 - contributions of c.£7,000 p.a.
2010 to 2014 - contributions of c.£11,000 p.a.
2015 onwards - contributions of c.£20,000 p.a.
Edited by Panamax on Tuesday 10th November 14:28
I see a lot of stuff about investing early in life for such fantastic returns. The problem for many (including myself) is that money is often tight in the early years. Mortgage/rent to pay, car finance because you don't have the capital, kids to pay for etc. Spare money to put in savings and investments doesn't really exist for most. I'm in my mid 50s now and it's only in recent years that I've had enough money left over to start stashing some away for the future. But it's too late now to enjoy any big gains from compounding.
But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
Hustle_ said:
I was reading an article about the many thousands of ISA millionaires and thinking about how useful and powerful and (say it quietly) generous it is as an allowance...
Indeed which no doubt is why various Chancellors have at times dropped some hints about doing something about it. ChrisH72 said:
I see a lot of stuff about investing early in life for such fantastic returns. The problem for many (including myself) is that money is often tight in the early years. Mortgage/rent to pay, car finance because you don't have the capital, kids to pay for etc. Spare money to put in savings and investments doesn't really exist for most. I'm in my mid 50s now and it's only in recent years that I've had enough money left over to start stashing some away for the future. But it's too late now to enjoy any big gains from compounding.
Exactly - we’’ve got people dropping out of public sector pension as they say they can’t afford the monthly contribution. 82,000 in the NHS alone.Edited by Sheepshanks on Tuesday 10th November 16:45
ChrisH72 said:
I see a lot of stuff about investing early in life for such fantastic returns. The problem for many (including myself) is that money is often tight in the early years. Mortgage/rent to pay, car finance because you don't have the capital, kids to pay for etc. Spare money to put in savings and investments doesn't really exist for most. I'm in my mid 50s now and it's only in recent years that I've had enough money left over to start stashing some away for the future. But it's too late now to enjoy any big gains from compounding.
But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
I'm the same as you, in my mid 50's and never until last year had money to invest. I'm making up for it by giving my son £20k per year to put into ISA's & LISA's as I want him to benefit from compounding interest and have a chance to be able to retire in his 50's, as I am doing, But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
Cats_pyjamas said:
I think it's just verifies the glorious effect of compound interest and the key is to start as early as possible.
It's exactly that.Granted you've got to be fortunate enough to be able to max out the allowance(s) and to be old enough to have been able to take advantage of all those years worth but I don't think it's that far fetched that quite a few "not super rich" people would have been able to do that.
Yes I've been randomly investing into a no brainer VLS60 plus latterly VLS80 since 2013 when we paid the mortgage off and its now up to £300k. With DB pensions more then covering everything its a nice holiday / treat the kids pot to have. In 25 years married life before that we never had any savings at all and were always pretty well mortgaged to the hilt.
ChrisH72 said:
I see a lot of stuff about investing early in life for such fantastic returns. The problem for many (including myself) is that money is often tight in the early years. Mortgage/rent to pay, car finance because you don't have the capital, kids to pay for etc. Spare money to put in savings and investments doesn't really exist for most. I'm in my mid 50s now and it's only in recent years that I've had enough money left over to start stashing some away for the future. But it's too late now to enjoy any big gains from compounding.
But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
I agree but set yourself a 10 year target and as I know from experience a lot can be achieved.But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
Also, invest for your kids if you can afford it, even £50 a month from birth will be a tidy sum when they are 21 or just never tell them and give it to them when they are 50.
8-P said:
ChrisH72 said:
I see a lot of stuff about investing early in life for such fantastic returns. The problem for many (including myself) is that money is often tight in the early years. Mortgage/rent to pay, car finance because you don't have the capital, kids to pay for etc. Spare money to put in savings and investments doesn't really exist for most. I'm in my mid 50s now and it's only in recent years that I've had enough money left over to start stashing some away for the future. But it's too late now to enjoy any big gains from compounding.
But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
I agree but set yourself a 10 year target and as I know from experience a lot can be achieved.But yes, I get your point that if you are able to take advantage of ISAs early on then it's well worth it. Not sure it's what the Government had in mind when they introduced them though!
Also, invest for your kids if you can afford it, even £50 a month from birth will be a tidy sum when they are 21 or just never tell them and give it to them when they are 50.
My son will have a decent amount when he's 18. Not sure I'll live to see him reach 50 as I would be 93. You never know though!
Hustle_ said:
I was reading an article about the many thousands of ISA millionaires and thinking about how useful and powerful and (say it quietly) generous it is as an allowance...
Having lived in the US for 4 years, can confirm, UK has a very generous regime, IMO£80k per annum can be sheltered from current / future tax across Pension & ISA. Great if you can afford to fully utilise it.
thekingisdead said:
£80k per annum can be sheltered from current / future tax across Pension & ISA. Great if you can afford to fully utilise it.
Bear in mind that ISA contributions are always made out of fully taxed income whereas pension contributions can be used to avoid the "cliff edges" at income of £50,270 (40% rate) and £100,000 (60% effective rate). If someone can, for instance, get tax relief at 40% on contributions and later pay 20% tax on pension income that's a significant advantage for pension over ISA. (The same applies at 60% vs 40% and at 20% vs 0%.)ISA is particularly useful IMO to early retirees who want to bridge an income gap to pension age 57 (2028) or state pension age 67 (2028) as the case may be.
I think the ISA limit these days self governs well in that nobody likes it, people who can't afford to fill it until late in life are pissed off it came so late in life just as much as those than can easily fill it are pissed off the limit hasn't moved in god knows how long.
The only way to get rich with an ISA is to be crazy with the stock picks. Filling it each year isn't enough unless you plan not to touch it until you're half dead.
The only way to get rich with an ISA is to be crazy with the stock picks. Filling it each year isn't enough unless you plan not to touch it until you're half dead.
Edited by okgo on Tuesday 10th November 22:54
Panamax said:
If someone can, for instance, get tax relief at 40% on contributions and later pay 20% tax on pension income that's a significant advantage for pension over ISA.
It is, but if you've stuffed significant amounts into a pension then any reasonable investment strategy is going to mean you'll not be able to avoid paying 40% tax on some of it, or you'll never use it up. Especially once you get state pension.Gassing Station | Finance | Top of Page | What's New | My Stuff