ISA: How, not how much
Why ISAs make sense
I joined a few colleagues on a podcast a while ago to see if we could ditch the clichés and have a frank chat about our own money goals, worries and everything in between.
It was quite cathartic to hear I wasn’t the only one who didn’t quite feel on top of my entire financial world however, for me the biggest take away wasn’t about how much I was saving but how I was saving it.
Save smarter, not harder
In the UK we tend to have quite a linear view of long-term savings, concentrating on stockpiling cash in bank accounts until we need to dip into it. It’s certainly a simple way to look at saving but is it the most efficient? Well, no.
The longer our money sits there doing nothing, the more it’s eroding in value - anyone whose grandma has given them 20p to spend in the shops will be able to recognise that. Using your Stocks and Shares ISA instead of a bank vault means you have the opportunity to beat the negative effect of inflation instead of falling victim to it. Like any investing, there’s risk involved, but a few clicks is all it took me to find a level I was happy with - have a go if you’re curious with our PathFinder tool.
I have always said I never want money to be the reason I can’t do something and the others on the podcast seemed to agree. Building up investment returns on top of the cash you save into your ISA could be the difference between hitting your goals and coming up short - you might reach them sooner than you thought or be able to pay for the honeymoon as well as the wedding when the time comes.
Talking of savings goals, if yours are quite far away you have the tremendous advantage of time on your side. Whether you’d like to send the kids off to uni without them worrying about getting into debt by opening a Junior ISA for them, or you want to look at that house knowing you alone earned it, given enough time and some smart ISA saving, you could be toasting a major life achievement with something fun and bubbly.
A lot of savers won’t be able to pop that cork simply because of where they chose to save - a prospect that helps a lot of people become ISA investors in a time of record-low interest rates elsewhere. But the later they leave it, the less time they have to build up those returns.
And it used to be that sometimes the biggest hurdle was choosing an investment to put in your ISA but even that side of things isn’t difficult anymore. You don’t need to geek out on stock market graphs or even the companies behind them. Professional fund managers are there to do it for you. Here are a few ways we like to make choosing an investment easier.
In the end, I think it’s really about doing what you can with what you have - hardly news, but how you go about it can have a very pronounced effect on what you end up with, especially over the long term. Stocks and Shares ISA are a way to grow your money and keep the growth you’ve earned - if you’re trying to do everything you can to help your future self, they might be the way forward for you.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future.
Please note that this information and our guidance tools are not personal recommendations in respect of any particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.