ISAs remain one of the most popular investment accounts available in the UK, with the stocks and shares ISA in particular offering potential for making a good return over the long term on any investment.
However, there are a number of things to bear in mind if you’re planning on taking one out.
Here are our tips on everything you need to know about stocks and shares ISAs:
You Can Take a DIY Approach, but it’s Not Necessarily the Right Way to Go
It’s entirely possible to choose stocks and shares yourself, purely based on your own research. Many experienced investors do just this.
However, if you have no past experience in making these sorts of investments, it’s usually wise to obtain financial assistance from a well-reputed financial advisor.
Whatever approach you take, be sure to take the time to do a lot of research on either the investments you make or on the advisor you put your trust in.
Be Sure You Understand the Saving and Account Limits
For the 2017-18 tax year, the maximum amount that can be put into any ISA is £20,000, with any contributions you make to a cash ISA having to come out of the same allowance.
So, should you put £3,000 into a cash ISA during the tax year, you’ll only be able to save £17,000 in your stocks and shares ISA.
It’s also worth keeping in mind that you can only open one of each kind of ISA in each tax year. You can have more than one of each type open, though, as long as you open them in different tax years.
You’ll Need to be Aware of the Risks
As with any form of investment, you’ll need to get your head around the idea that you’re taking a risk in putting your money in stocks and shares.
Now, the idea isn’t anywhere near as scary as it might seem if you’re not experienced in this area, but it is still something to bear in mind.
It’s for this reason that we’d usually recommend obtaining financial assistance: a skilled financial advisor will be able to more clearly lay out the potential benefits and the potential risks of this kind of ISA.
Make Sure You Find the Ideal Provider to Suit Your Needs
If you take out a cash ISA, the chances are your provider will be one of the high street financial names – one you’ve heard of.
However, stocks and shares ISAs are often supplied by smaller, less well-known financial institutions.
This is, again, just something to be aware of, and it’s not necessarily a problem – smaller firms often can offer a better service than the bigger names.
The key, as ever, is to take the time to do your research.
Look up potential firms and find out what other consumers have said about them. These days, it’s easy to find impartial reviews on almost any business.
Choose Your Investment Method
There are two main investment methods that work with stocks and shares ISAs, and both have their advantages and disadvantages.
Lump-sum investing will mean investing your full contribution for the year in one go, and will start earning you interest immediately.
Timing the market won’t be an issue as long as you’re planning to invest for the long-term.
The other option is to drip feed your allowance throughout the year from your savings via a direct debit.
This is often a better option for those that don’t want to deal with dips in the market: a small drop feels less intimidating when it’s on a smaller sum of money!
As ever, if you’re at all unsure which technique will work best for you, consult a financial advisor. They’ll be able to tell you which technique will suit your situation and how to get the best ISA rates.
Don’t Tinker too Much
As with any kind of stocks and shares investment, it can be tempting to get a bit too ‘hands-on’.
However, this isn’t a good idea: once you’ve got a specific, solid portfolio set-up, you’ll only make positive returns on your investment by leaving it alone!
The idea of making money overnight on the stock market is one that rarely comes off in reality; the real money comes from making solid investments and letting them pay off in the long-term.
As with most investment portfolios, you want to avoid having all of your eggs in one basket.
All investments go down, as well as up – it’s natural.
By having investments in a number of different assets, you’ll be able to alleviate any particular losses, and you’ll have a better chance of getting some larger payoffs.
Any solid financial advisor will be able to help you build a portfolio that’ll keep you covered in the event of any losses, and also give you the best chance of making solid gains over the long run.
Needless to say, only making one type of investment means you run the risk of serious losses should the market crash.