A Stocks and Shares ISA is arguably one of the most powerful wealth-building tools available to UK investors. After all, any dividends and capital gains inside an ISA can be enjoyed entirely tax-free.

But how much money can investors realistically expect to make with this account in the stock market versus a Cash ISA? And is the added risk really worth it? Let’s take a look.

Investing versus saving

The latest research by Moneyfacts Group found that over the last five years, the average return inside a Stocks and Shares ISA was 8.39% a year. That’s despite the markets enduring quite a rough patch in 2022, with many smaller companies suffering significant share price drops in light of rising inflation and interest rates.

By comparison, the average return inside a Cash ISA over the same period delivered just 2.15% a year, even as interest rates on savings shot skywards.

To put these numbers into monetary terms, a £1,000 initial starting pot in 2021 has, on average, grown to £1,496 for anyone using a Stocks and Shares ISA. By comparison, those only saving in a Cash ISA are now sitting on just £1,112 and have actually lost money in real terms when factoring in inflation.

So from a wealth-building perspective, the Stocks and Shares ISA’s the clear winner. Of course, shares are more volatile, and past returns don’t guarantee future gains. But over long periods, compounding higher gains can and does make an enormous difference.

With that in mind, let’s zoom in on one UK stock that ISA investors may want to consider today.

A top-notch compounder

One business that’s caught my eye lately is Halma (LSE:HLMA). The FTSE 100 group owns dozens of specialist technology companies operating across safety, healthcare and environmental markets. These businesses make everything from fire-detection systems and water-quality sensors to medical equipment.

Management typically lets its subsidiaries operate fairly independently before reinvesting their cash flows into organic growth initiatives and further carefully selected acquisitions. It’s not a complex formula, but it’s one that continues to deliver results.

A recent trading update shows that order intake remains ahead of revenue. And the group has subsequently upgraded its adjusted operating margin forecast from around 22.7% to 23.5%-24% by the end of March next year.

So is now a good time to buy?

A rare opportunity?

Despite this operational momentum, Halma shares have actually fallen sharply from June’s 4,902p high. And today they’re currently trading around 3,500p per share.

What happened? There’s no single driver behind the drop. But largely, it can be attributed to weaker-than-expected organic growth guidance paired with a premium valuation that leaves little room for error.

Today, Halma’s valuation is still at a premium, albeit a slightly smaller one. As such, volatility remains a real risk, especially considering management’s acquisitive growth strategy. Don’t forget that acquisitions don’t always work out. And if the business overpays for an underperforming asset, it ultimately destroys shareholder value.

Regardless, the recent sell-off does make today’s price a more attractive entry point. The shares are far from cheap, but quality rarely is. And with decades of proven compounding under its belt, Halma is definitely a business I think is worth mulling over. Yet it’s not the only one…

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Zaven Boyrazian does not hold any positions in the companies mentioned.