Important information - the value of investments 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.
If you are a little hesitant about investing your ISA allowance this year you are not alone. The uncertainty created by the pandemic has left so many aspects of our lives up in the air. Investing as you would do in ‘normal times’ can feel at odds with what is going on around us at the moment, but if 2020 has taught us one thing, it is that being prepared for the unexpected is so important.
That is why carrying on investing and keeping your post-pandemic plans intact is vital. The knowledge that one day normal life will resume and you will be poised ready to pick up where you left off, is not only reassuring but also puts you back in control.
Market volatility is one reason why investors tend to hold back from investing during times of uncertainty. However, as we have seen time and again, if you are investing for the longer-term, that gives your investments plenty of time to grow and iron out any ups and downs in the stock market. And a good way to take advantage of those ups and downs is to invest steadily and consistently.
We each have an annual ISA allowance that enables us to save up to £20,000 tax-free in the current tax year. Now, while putting that sort of sum into your savings and investments at the start of each tax year would be ideal, let’s be honest, for most of us it’s totally unrealistic. Investing in a regular monthly savings plan can make it a lot easier.
To give a hypothetical example, imagine you were able to invest directly in the FTSE All-Share Index. If you split your annual ISA allowance into 12 equal sums and invested diligently into the index every month over the past ten tax years, the investment could now be worth more than £153,0001 – though this figure doesn’t include charges, so the actual value would likely be lower. And if you had started ten tax years earlier, it could be worth over £299,0001 (also before charges). It is also important to note that this example is based on past performance, which is not a reliable indicator of future returns.
In fact, diligently saving on a regular basis into your Stocks and Shares ISA, could also be better than investing the whole amount in one lump sum when each tax year ends. You put aside the same total amount either way, but in our hypothetical example, the regular monthly saver would have been more than £6,1001 better off over ten years and over £12,9001 over 20 years. All despite having invested the same amount overall.
That is down to something called pound cost averaging where your regular investments mean you invest at a different price each month. Overall, you get the average price across the time you invest for, rather than putting it all in at once and relying on the price on a single day; which could be particularly valuable in volatile conditions.
Setting up your regular monthly saving is easy and you can start from just £50. It’s also simple to increase, stop or restart your monthly savings as and when you need to. But the beauty of a regular savings plan is that once it’s set up you automatically save every month. There’s no risk of missing out and no risk of missing the end of tax year deadline-it’s all taken care of.
Five year performance
|(%) As at 30 June||2015-2016||2016-2017||2017-2018||2018-2019||2019-2020|
Past performance is not a reliable indicator of future returns. For illustrative purposes only. This chart is based on the performance of the FTSE All-Share Index between 1 July 2015 and 30 June 2020 and does not take into account the impact of any charges or fees.
Source: Rimes in GBP terms with income reinvested.
Fidelity has been licensed by FTSE International Limited to use the name FTSE All-Share Index.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
1 Source: All calculations attributed to Datastream, Fidelity International, April 2020. Total return in GBP of FTSE All Share.
Calculations based upon investing the full historical ISA allowance over 10 years (06/04/10-06/04/20) and 20 years (06/04/00-06/04/20).
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