The average returns for savers have been pretty pathetic compared to what the average UK share investor has made.
The Bank of England kept interest rates at rock-bottom lows for years following the 2007/2008 financial crash. It looks likely that the Bank’s benchmark will remain close to their current record lows of 0.1% too, as the economy slowly emerges from the Covid-19 crisis.
The bad news is that savers can still expect to get little return on their hard-saved money. Intense competition among banks and building societies means savings rates are beginning to edge higher again. Yet current products still yield a pretty poor return on savers’ cash. Even the best-paying instant-access Cash ISA on the market doesn’t offer a rate above 0.6%.
Why I’d invest in UK shares
According to financial services provider Raisin the average British adult had £9,633.30 in savings in 2020. It’s a lump sum that one can make a decent return on if invested in the right place, such as by buying UK shares.
Let’s say that I chose to simply place this sum in a Cash ISA instead. After 30 years I’d have £10,770.78 sitting in my account, making me a profit of around £1,440 on that initial investment. That’s not going to make a big impact on my retirement plans, I’m sure you’d agree.
Now let’s suggest that I parked that £9,633.30 in a Stocks and Shares ISA, for example, and made no further contributions. After 30 years invested in UK shares I’d be likely have a balance of £59,165.12. That’s a profit of almost £49,835. This is based on studies showing that the average annual return for stock investors sits at around 8%. Not that it’s guaranteed, of course, as dividends can be cut and share prices can fall.
Making profits
That’s quite a difference. And with regular investment one can turbocharge the size of returns they could make still further. Let’s say I invest that £9,633.30 straight away and contribute an extra £300 a month to buy UK shares. After 30 years, I’d potentially have a balance of £308,208.75, making me a profit of £212,478 on total contributions of £86,400.
I think today is an excellent time to go shopping for UK shares too. Market confidence is pretty shaky right now as fears over soaring inflation (and the possibility of central bank policy tightening in response) grow. Recent selloffs mean that plenty of top-quality stocks can be picked up for next to nothing.
Here’s what I’m doing now
I’ve been dip-buying UK shares myself and have increased my stakes in CVS Group and Clipper Logistics following recent falls. There are plenty of excellent stocks just on the FTSE 100 alone that appear too cheap to miss right now, too. Insurance giant Aviva, telecoms titan Vodafone and household goods manufacturer Reckitt Benckiser are just a few blue-chip stocks I’m thinking of buying today. And I’m scouting other indices for other top stocks that could soar from their current lows.
There’s plenty of help out there from experts like The Motley Fool to help me select the best stocks to buy and create a winning investment strategy. So there’s no reason to sit back and accept poor returns from traditional low-yielding savings products.
Buying UK shares is the best way to build a big retirement nest egg, in my opinion.