When the FTSE 100 tumbled 32% in the depths of the sell-off, many investors got cold feet. The mass exodus away from the stock market and into alternative assets and savings accounts was prompted by plunging share prices and economic uncertainty. But while accounts such as a Cash ISA offer certainty and safety, they certainly won’t enable you to effectively grow your wealth. Instead, I’d invest in the best UK shares on the market to build a tidy retirement pot.
Abysmal Cash ISA rates
Don’t get me wrong. A Cash ISA can come in extremely handy when saving for short-term goals such as a house deposit. But for anything above and beyond that, they are practically useless.
The atrocious interest rates on most of these savings accounts means that, in real terms, your hard-earned money is actually losing its purchasing power. Over time, this can have a seriously damaging effect on your savings. Moreover, expect a far smaller retirement pot than if you directed your cash elsewhere.
What’s more, the UK bank rate looks set to remain at rock-bottom in order to bolster economic recovery. So, it doesn’t look like the rates on the majority of Cash ISAs will be improving any time soon. With that in mind, I urge those saving for the long term to consider investing in a Stocks and Shares ISA. But why?
Buying the best UK shares in a S&S ISA
Historically, the stock market has delivered a far superior return than a Cash ISA over lengthy periods. For example, over the last 30 years, the FTSE 100 Index has averaged an 8% annualised return.
While investing in shares is almost guaranteed to be more volatile, those who stomached the additional risk in the past have always been rewarded handsomely in the long run. For example, let’s say you invest £500 a month for exactly 30 years. Assuming an annual return of 8%, your investment pot will have grown in value to £708,821.
To make a million, however, you’re going to have to beat the average return of the FTSE 100, which is easier said than done. To illustrate though, after 34 years of investing £350 a month, with an annual return of 10%, your investment would be worth £1,086,038.
Although remember, you should only invest in shares if you’re willing to hold for the long term. That’s at least five years, but ideally even longer. The larger your investment horizon, the more time you have to ride out temporary market downswings. Additionally, a longer time frame aids the process of compounding, which has a huge impact on returns, as illustrated above.
As such, buying some of the UK’s best shares and holding them in an investment ISA is a far superior way to build long-term wealth, in my view. Money in a Cash ISA seems wasted when it could work much harder for you in the stock market.
The post Forget a Cash ISA! I’d buy the best UK shares to make a million from the stock market crash appeared first on The Motley Fool UK.
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Matthew Dumigan has no position in any of the shares mentioned. 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.
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