Introduction to a Stocks and Shares ISA

by Adam on February 1, 2012

We would all love to make a fortune, but most of us don’t know how we will become millionaires. However, it is still possible to make small investments and get a good return on your money (if you’re lucky/make your own luck!), effectively turning a tiny amount into a relative fortune – as long as you invest consistantly and are willing to take on the risk that comes with any investment.

Don’t confuse risk with ‘gambling’ though. It’s a bit different to playing slots for iphone. Both can be fun but when it comes to investing you need to thing about it in a different way.

A great way to invest is in a stocks and shares ISA.

For this type of investment you put your money into an ISA account which then is invested in various stocks and shares (this varies depending on the specific ISA that you have chosen and the options available).

The great thing about ISAs is that your money can grow tax-free, so you don’t have to worry about paying any tax on the interest, capital gains or share dividends you may earn as a result – which is one way you can help turn your small investment into a relative fortune, as the lack of tax helps to boost your return.

You can also choose whether you want to reinvest your dividends in more shares (recommended for simplicity and to compound your returns), and you can generally put as much or as little into your share ISA as you like each month; just don’t go over the total annual limit that is placed on all ISAs which is currently over £10k per year.

Of course, it is important to note the risk that comes with a Stocks and Shares ISA – the stock market is not guaranteed to rise continuously and so your investment has the potential to dip – but if you are able to leave your money in the ISA over the long term, there is a good chance that the investment will grow.

By how much it grows often depends on how the investments inside the ISA perform.

It’s a good idea to investigate the best stocks and shares ISA for your needs, and understand what you are investing in as investment risk varies enormously. For instance, investing in a climate change mutual fund inside your ISA (that invests in energy-conscious businesses) is one of the riskier investments, but it has may perform very well over the long term.

If you are looking to spread out your options, one particular favourite investment is the FTSE all-share tracker fund so you never miss out when the stock market grows. Adding bonds and gilts into your ISA could also be worth considering; these can offer lower returns but they have less risk attached.

Overall, making a fortune requires dedication and care to make sure you make the best investments for your needs and that you manage the risk attached to investments wherever possible. With one eye on the long game and one eye on your current investment portfolio, you should have a decent chance of growing your ISA investment in the months and years to come.

 

Overwhelmed by your options but want to start investing? Sign up for updates and I’ll walk you through it.

 

You may also find helpful:

Why A Pension (and an ISA) Is Like A Water-Proof Envelope

 

 

{ 2 comments… read them below or add one }

Helen

Thank you for the article. I’m determined that 2012 is going to be the year that I fully explore and understand investing in stocks and shares; there’s a lot to take in though.

Your links to Virgin Money made me curious as to whether you had any experience with them managing your investment portfolio, and if so, why you chose them in the first place (fees, options, customer service…?)

Adam

Hi Helen,

Great to hear from you and I’m really excited that 2012 that you’ve set the intention to learn more about investing.

Personally I use Fidelity.co.uk for my investing as I really like them. That said there’s some other services that are pretty cool too. EZ ISA is one I highly recommend:
http://ez-isa.com/about-us/

I haven’t actually used Virgin Money.

You’re right about there being lots of options and I’m going to be experimenting with different providers to provide some clarity on the issue.

Bottom line: definitely look at what ‘index funds’ or ‘trackers’ you can get…and as general rule try to ensure the total expense ratio is less than 0.5%. You’ll see lots of ‘mutual funds’ at 1.5% and over the long term they are unlikely to outperform lower cost funds.

Hope that helps a bit.

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