Three weeks ago, I maxed my stocks and shares ISA; John maxed his as well.
“What? You poured money in the stock market now, when the index is jumping up and down like an over-excited puppy?” – you may think.
Yes, friend. This is exactly what we did.
I’ve been training myself to invest like a girl (okay, some of this comes naturally to me) and two things that we, investing girls do, are: we don’t sell when markets are down; and we are always on the look-out for bargains (be it shoes or stocks and shares).
As bargains go, stocks and shares ISA is one of the best around. Hence, this is the third year in a row that we max our ISAs; we do this before we consider any other investments.
Now, before you leave this page because reading about maxing your ISA is akin to reading Cinderella, I’d like to remind you that five years ago I was nowhere near maxing my stocks and shares ISA. Seven years ago, I didn’t have an ISA; seven years ago, we had debt and no liquid investments. We build it up and I believe that if you can do that as well. You just need to understand the advantages of this kind of investment and want it enough.
Here is why I believe that investing in stocks and shares ISA is the best thing that you can do for your money.
Tax evasion is morally bankrupt behaviour (call me old fashioned, if you wish but this is what I believe). Making sure that your money affairs are conducted in most tax efficient manner is smart move.
This is where, investing in a stock and shares ISA (or any ISA for that matter) is hard to beat. (You can check out this comparison between a stocks and shares ISA and a SIPP account, if interested. If you are short on time, I can tell you that in the long run the ISA wins.)
ISAs are tax efficient in two ways:
#1. When you keep within the tax-free ISA limit, which for 2017-2018 is £20,000, any investment returns, and dividends, are not taxed.
#2. There is no tax when you withdraw money from your ISA.
Yes, I know that you contribute after tax income in the ISA but still – as investments go, a stocks and shares ISA is ultimately very tax efficient.
Stocks and shares ISA is very flexible investment vehicle.
Your choices are many.
- One choice you’ll have to make is about what to include in your ISA –value and dividend stocks or ‘basket’ investments like ETFs and Index Funds.
- Another choice is whether you’d like to tinker with the content of your stocks and shares ISA yourself or you’d rather delegate its management.
- Do you prefer fully managed ISA or you’d rather have a fixed allocation one?
- And you ought to select an investment platform for your ISA.
Apart from that, you can transfer your ISA were you to find a better provider or your requirements change over time.
One question that people ask me is whether they can split their ISA allowance between several providers.
Yes, you can. I have split my stocks and shares ISA between Nutmeg and Vanguard – make me feel better (diversification) and it is one of my little experiments.
What is important is that you don’t exceed the annual tax-free ISA allowance. All else is flexible and can accommodate even a fussy investor.
Do you ‘violate’ your savings accounts?
You know what I mean, don’t you? The situation where you have a bit of overdraft and pull some money out of your savings.
(I do this sometimes. Life doesn’t care much how good my money management skills are; it happens and when it throws me a money curve ball, I go to the money transfer button.)
You can’t do this with stocks and shares ISAs – or any ISAs for that matter. Okay, it is technically possible, but it is such obviously dumb move that most people think ten times before do it. You see, when you’ve withdrawn money you can’t replace it tax free.
Many digital wealth managers offer, what I call ‘off the shelf’, stocks and shares ISAs. If you don’t have much experience investing and would like your money to do better than lose 2% per year in a savings account (or a cash ISA) you can look at ISA providers like Nutmeg, Scalable Capital and Vanguard.
Your stocks and shares ISA is the best you can do for your money. It may not be as sexy as Bitcoin, or as desirable as investing in property. Still, if you contribute to your ISA regularly, if you make the choices appropriate to you and have a bit of patience, you can build a comfortable nest egg.