A decade inside an ISA, without a miracle

The most honest picture of long-term investing is dull on purpose. A person sets up a standing order into a stocks and shares ISA, buys the same low-cost mix each month, and does not renegotiate the plan because of a Thursday. What follows is the arithmetic of that dullness, and then a list of the ways life refuses to match it.

Assume £250 leaves a current account on the first working day of every month for twenty years. That is £3,000 a year, well inside the adult ISA allowance of £20,000, so in this illustration the whole sum sits inside the ISA and UK capital gains tax and dividend tax do not touch the result. Assume, falsely and usefully, that the investments return a constant 5 percent a year or a constant 7 percent a year, with returns credited smoothly each month, charges already netted off, and no gap, no crash, and no contribution holiday. Contributions over twenty years are £60,000. At a constant 5 percent the pot ends near £102,758. At a constant 7 percent it ends near £130,232. The gap between those two endings is not a skill you can select in advance. It is a reminder that the rate is the unknown.

The twenty rows, in full

Figures are rounded to the nearest pound. Rounding means the last row can differ by a pound from a formula printed elsewhere. The shape is the point.

What the table is hiding

• Real annual returns are not a monthly drip of one-twelfth of 5 percent. They arrive in clumps. A year can be down 20 percent and the standing order still has to leave the bank, or the illustration has changed species.
• Inflation is not in the table. A pot of £102,758 in twenty years’ money is not the same basket of groceries as that sum today. Cash feels safer and then loses the comparison quietly.
• Charges are assumed to be already inside the rate. If your fund and platform cost 1 percent more than the cheap mix you thought you bought, you do not get to keep the 5. You get something closer to 4, and the twenty-year gap is large enough to notice without being large enough to feel, month by month, like an emergency.
• The ISA allowance is use-it-or-lose-it, but this person is only using £3,000 of £20,000. The table is not an argument for putting every spare pound into equities. Emergency cash and near-term bills stay out.
• Sequence matters if you stop contributing and start withdrawing. This illustration never withdraws. A pension being drawn down is a different sum, with tax on the way out of the pension, and this page does not pretend otherwise.
• Nothing here is a projection we endorse, a past performance, or a fund. There is no ticker, because a ticker would imply we had chosen one.

Why this is still worth doing, and why it is not day trading

The early rows are almost entirely money you put in. At the end of year one, at 5 percent, you have paid £3,000 and the pot is only a little above that. The interesting gap opens later, and only if you are still there. A day trader’s feedback loop is the same afternoon. This loop is measured in parliaments. People who need the afternoon loop will be bored by year two and will “put the ISA to work” by turning it into a dealing toy. That is how a shelter becomes a scoreboard.

If you want the afternoon loop, keep it in a separate pot you can lose, and read what day trading actually costs. If you want this table’s shape, the work is administrative: the standing order, the cheap mix, the refusal to check it on a Sunday night. The long-term briefing is the practical version. The tax page explains why the ISA is doing more work in this picture than the choice between 5 and 7.

We will correct the arithmetic if you find a rounding error. We will not correct it into a promise.