Paying into a Stocks and Shares ISA is a good way to give your finances a chance to grow over the long-term. Not only does it allow you to invest on the stock market, it also stops the UK government from taking a share. If you’re comfortable taking some risk and want to give your money the best chance to flourish, opening a Stocks and Shares ISA is a lot easier than you think. Here are 5 rules to get you started with a Stocks and Shares ISA.
Use your allowance
Each tax year, you can put up to £20,000 in a Stocks and Shares ISA (also called Investment ISA) – this is your annual ISA allowance. Put simply, it’s the total amount you can save or invest tax-efficiently. You have until the 5th April to use your allowance. If you don’t, you’ll lose it forever, so make the most of it before the deadline passes. The way you use your allowance is up to you. You can either put it all in your Stocks & Shares ISA, or you can split it between your Investment ISA and another ISA type. If you can’t afford to invest big lump sums, don’t let it stop you investing. There are lots of options for those who would rather invest small regular sums, like £50 a month into a Stocks and Shares ISA. In fact, tucking away your money little and often can be a great way to grow your pot of cash over the long term.
Make sure to diversify
There’s no escaping it, investing in a Stocks and Shares ISA does involve some risk. But you can control the amount of risk you take with your money by making sure you diversify your investments. This just means spreading your money across investment types and financial markets (e.g. shares in the FTSE 100 and the Nikkei 225). This way, if some investments you hold perform poorly, they may be balanced out by others doing better.
Be ready to stick with it
The key to investing is to let time do its job. History shows that investing in the UK stock market between 1900 and 2017 would have generated an annual average return of 5.5% above inflation1. So, if you choose to pay into a Stocks and Shares ISA, it’s important to take a long-view and ignore the noise. It can be very stressful to see markets you’re invested in go down, but over the long term you should ride out the ups and downs of the market and give your money the best opportunity to flourish.
1: Credit Suisse
Choose the route that suits you
Opening a Stocks and Shares ISA can be complicated, or simple, depending on which route you take. Either go with a platform that requires you to pick from thousands of investments to build your own portfolio, or get a low-cost digital wealth manager, like Wealthify, to do all the hard work. You’ll need to choose how much to invest and the risk level you’re happy to take, but that’s it. The route you choose will depend on how much control you want over what you invest in, but if you don’t have the time or patience to research yourself a digital wealth manager could be a faster and less stressful solution.
Don’t forget to shop around
Opening a Stocks and Shares ISA might seem like an overwhelming task. The sheer number of providers to choose from could be enough to stop you in your tracks. It’s important to do your research and compare what they offer, but ultimately, the lower the fees you pay the more returns you get to keep, so always pay attention to what you’ll pay including any hidden costs like withdrawal charges. If you’re opting for a platform where your money is invested on your behalf, you will likely need to pay fees for having your funds managed by experts. Some providers might even charge you for taking money out of your Stocks and Shares ISA. So, make sure you look at the different costs as they can eat into your returns.
The tax treatment depends on your individual circumstances and maybe subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Investing is for everyone.
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.