If given enough time, the Stocks and Shares ISA can become a powerful compounding machine. That’s because 100% of the returns, including income, grow completely tax-free in this account.
So, how much could ten grand invested in an ISA be worth by 2035? Let’s find out.
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.
Rule of 72
We can calculate this with the Rule of 72. Using this simple formula, it’s possible to quickly work out how many years it would take for an investment to double in value at a given annual rate of return.
At a 9% compound annual return, it would take roughly eight years to double (72 ÷ 9). So the ISA would be worth almost £21,000 by the start of 2035, excluding account fees.
Note, this calculation assumes that any dividends are reinvested rather than the cash being withdrawn. Also, the 9% figure is the average, with the actual returns likely to vary significantly year to year, including some negative years.
Nevertheless, it demonstrates how powerful long-term investing can be, especially compared to holding cash.
Aiming for more, much more
So far, we’ve just looked at how much a lump sum of £10k would be worth by 2035. But what about someone who invests a further £300 a month — well below the ISA’s £20k annual allowance — into the stock market?
Well, assuming the same 9% return, the end result is dramatically higher. In this scenario, the portfolio grows to approximately £66k by 2035.
The keys to success are regular contributions, patience, and putting money into quality investments. As Warren Buffett‘s widely shared quote goes: “Someone’s sitting in the shade today because someone planted a tree long time ago.”
A high-quality UK stock to consider dip-buying
One UK stock that I like right now is AstraZeneca (LSE:AZN). After falling 24% since February, the pharma giant has slipped behind HSBC and Shell in the FTSE 100 market cap rankings.
The reason is that AstraZeneca has had a handful of late-stage clinical trail setbacks recently. While disappointing, the company has also reported positive results from two other late-stage lung cancer trials.
For me, this highlights the importance of AstraZeneca’s deep drugs pipeline. It has almost 200 clinical-stage development programmes, giving the oncology powerhouse plenty of shots on goal.
Crucially, AstraZeneca currently remains committed to its 2030 target of $80bn in annual revenue. That would be up from $58.7bn last year.
However, another thing hanging over the stock is a rumoured mega-merger with Bristol-Myers Squibb. Investors didn’t like this news, and it’s worth noting that history is littered with pharma mergers that haven’t panned out as expected. So this adds an element of risk.
On balance though, I think the dip is worth considering, with the stock currently trading at just 13.8 times next year’s forecast earnings. Add in a 2.2% forward yield, and AstraZeneca offers solid value, in my opinion.
Finally, it’s worth mentioning that this industry could be a big beneficiary of advances in AI and, potentially, quantum computing. Such technologies have the potential to improve drug discovery, R&D productivity, and profit margins.
Five years from now, AstraZeneca could look like a bargain and drive solid ISA returns.
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Ben McPoland owns shares in HSBC.
