How much should an investor put into a Stocks and Dividends ISA to return £50 a day?

With a Cash ISA or Stocks and Shares ISA, UK residents can keep 100% of their capital gains tax-free. But that doesn’t mean they offer the same value in terms of potential returns.

Research shows that over 10 years, a Stocks and Dividends ISA can return four times more than a Cash ISA. Recently, higher interest rates have made Cash ISAs more attractive. But with the Bank of England eyeing another interest rate cut, those days may soon be over.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Of course, it’s not black and white. Direct investment in stocks is risky, especially for inexperienced investors. To avoid getting stuck in the value trap, it is important to do adequate market research and pick the right stocks.

ISA repayments

With a Cash ISA, investors will be able to make a return of around 4.5% at current rates. Even if that rate were deducted, around £400,000 would need to be deducted from the ISA to repay £50 a day (£1,500 a month).

For a dedicated investor putting £500 a month into an ISA, it would take around 31 years to reach £400k (including returns).

Stock markets

Unlike a Cash ISA, returns on stocks are not fixed so we can only work with averages. According to research done by AJ BellThe average rate of return on a Stocks and Shares ISA is 9.6%.

At that rate, it would only take £187,500 invested to return £1,500 a month. With an investment of £500 a month, it will take 21 years.

£500 too much? Investing £250 a month will take just 27 years.

Meanwhile, the investor can withdraw £1,500 a month or move the investment to a portfolio of dividend stocks making regular payments.

Again, this is an estimate and the actual rate each investor faces may be higher or lower. In addition, there is the added risk of a market crash that causes the entire value to fall.

Considers stocks

For investors who are willing to accept the risk, a self-directed ISA is the obvious option. Another type of asset that many early stage investors choose to simplify stock picking is an investment trust.

This usually provides exposure to the rest of the portfolio of stocks selected by an experienced fund manager.

IF&C Investment Trust (LSE: FCIT) is one of the UK’s leading long-term investment trusts. It was founded in 1868 as the world’s first collective investment scheme.

The fund invests in a diversified mix of stocks and assets, which allows it to withstand risks in certain industries or countries. However, it is more heavily weighted in US technology stocks than in other sectors. Think about it Nvidia, an apple, Microsoft… the usual suspects. A decline in this sector will hurt the stock price.

In addition, there is always a risk that the fund manager makes bad decisions, which harms the performance of the fund.

The fund also has an annual charge of 0.3% and an ongoing charge of 0.8%. Since January 2005, the stock price has increased by 497.4%, which equates to an annual growth rate of 9.35% per year. In addition to price growth, it pays regular and reliable dividends with a yield typically around 1.3%.

I’m still going to invest in this fund as I don’t have any spare cash right now, but I think it’s a very good one to consider for long-term value investors.