Investing any money in a Stocks and Shares ISA right now might seem like a risky prospect. Indeed, the outlook for the global economy is highly uncertain. The coronavirus crisis, Brexit, civil unrest and trade wars are all reasons to be fearful.
However, the world has been through many such periods of uncertainty in the past. On each occasion, the market has recovered from any setback over the next few years. There’s no reason to suggest that it will be any different this time round.
It might take many months or even years for the market to recover to previous levels, but patient investors should be well rewarded over the long run.
That’s why I’m investing in the market via a Stocks and Shares ISA today.
Stocks and Shares ISA investing
It is highly likely that the stock market will recover from its current setback over the long run, but picking stocks that will perform well is tremendously hard.
As such, the best way to invest for individual investors may be to buy a low-cost index tracker fund.
Index tracker funds could be a great way for individual investors to track the market without having to spend lots of time and effort selecting individual stocks. These funds only track the market’s performance and there’s no need to worry about the performance of their investment managers. They buy the stocks that make up an underlying stock index and leave the rest to the market.
This low effort approach also means they don’t charge horrendous fees. Investors can buy tracker funds for a Stocks and Shares ISA with charges from as little as 0.05%. That’s compared to around 1% for actively managed investment funds.
This 0.95% difference in fees can have a considerable impact on your wealth over the long run. An investor paying an annual charge of 1% will fork out £60,000 more in fees on an investment of £100,000 than the investor who chooses the fund with fees of 0.05%. That’s assuming the money is invested for two decades at a yearly rate of return of 7%.
Monthly investing
By keeping fees low and buying the market through an index tracker fund, it could be relatively straightforward to build a Stocks and Shares ISA worth £200,000.
Over the past three-and-a-half decades, the FTSE 100 has produced an average annual return of 7%. At this rate of return, I calculate it will take just 20 years of saving £400 a month to build a fund worth £200,000.
That’s assuming a FTSE 100 tracker fund is used with an annual charge of 0.05%.
It is possible to achieve the same kind of returns by picking individual stocks, but this approach requires additional time and effort. The average investor may be better off buying an index tracker fund in a Stocks and Shares ISA instead.
If you are investing with a long-term time horizon and want to focus on other activities rather than spending every day researching investments, these instruments could be the perfect tools to hit your financial goals.