Turned £10k into £40k: How UK's most popular fund has made Isa savers rich

Many private investors will be wary of using their £20,000 stocks and shares Isa allowance before the deadline on April 5, which is now just two weeks away.

Yet if they don’t act, their allowance will expire, and they will have missed an opportunity to build up long-term wealth for the future.

All money invested in an Isa is free of income tax and capital gains tax for life, which means HMRC cannot touch it. This is an unmissable opportunity.

One option is to play safe by putting money into a cash Isa, but over the long run, stocks and shares should make your money work much harder.

Only if you give it time, though. In the short term, shares can be hugely volatile and not for the faint hearted.

Nobody should invest in the stock market for periods of less than five or 10 years to overcome bouts of volatility, said Laith Khalaf, head of investment analysis at AJ Bell.

Some of the UK’s best selling Isa funds have had a rough ride since the start of 2022 but have still made investors richer over time.

AJ Bell’s figures show that Fundsmith Equity, run by star manager Terry Smith, remains the UK’s most bought investment fund. It now holds £23billion, making it the largest fund of all.

Smith has built his stellar reputation by running a long-term buy and hold strategy, investing in “high quality, resilient” global stocks like Microsoft, L’Oréal, Estée Lauder and Visa.

Performance dipped in 2022 but Fundsmith has recovered lately to deliver a positive return of 4.65 percent over 12 months.

It has done much better over five years, though.

Isa-savers

Isa-savers

Over that time it has delivered a total return of 67.46 percent. Somebody who invested 10 years ago would have done even better, making a total return 297.17 percent.

That would have turned a lump sum investment of £10,000 into a staggering £39,717.

Khalaf said: “No fund manager is infallible but Smith has a great track record.”

The popular Scottish Mortgage Investment Trust is also a UK best seller but it has found the last year harder. Its net asset value has plunged 35.82 percent after being hit by crash in US tech stocks, which it was heavily invested in.

Yet over five years, Scottish Mortgage has still delivered a total return of 49.29 percent, and over 10 years it is up 298 percent, matching Fundsmith Equity.

That would have turned £10,000 into £39,817.

Scottish Mortgage remains a best seller despite recent troubles but it invests in a high-risk sector and there is no guarantee it will recover former glories. So think carefully before racing to buy it today.

Low-cost index tracking exchange traded funds (ETFs) are in favour among stocks and shares Isa investors, said Victoria Scholar, head of investment at Interactive Investor. “Some ETFs charge less than 0.1 percent a year while active funds typically charge around 0.9 percent, so you keep more of your returns.”

The Vanguard S&P 500 ETF, which tracks the US stock market, remains one of the UK’s best selling funds even though it has fallen 7.67 percent over the last year.

However, it is up 59.38 percent over five years and 216.35 percent over 10 years, turning £10,000 into £31,635.

Much of this was down to the US tech boom and again, it may struggle to grow as fast over the next decade.

Another hugely popular tracker, iShares Core FTSE 100 ETF, tracks London’s blue-chip index which has done well over the last year, rising 9.57 percent.

Over 10 years this ETF has returned 78.28 percent, turning £10,000 into £17,828.

The FTSE 100 is playing catch-up after years in the doldrums, Scholar said. “It is full of solid, dividend-paying stocks in sectors such as banking, insurance, mining and consumer staples, which have held firm during recent volatility.”

Fidelity Index World is a one-stop shop fund that invests across thousands of companies in the US, UK Europe, Asia and Australia, giving massive diversification.

It is up just 0.39 percent over the last challenging year, but over 10 years it has returned 191.23 percent, turning £10,000 into £29,123.

As ever, past performance is no guarantee of future returns and your capital is at risk. Spreading your Isa allowance across several funds is safer than gambling on just one.

As these figures show, stock markets are bumpy in the short run but rewarding over much longer periods.

If you don’t want to pay a lump sum into today’s market many stocks and shares Isa fund platforms allow you park money in cash to secure your allowance before April 5, and drip feed it into the market after that.