ISAs

Should I have a stocks and shares ISA?

Whether you choose to invest in a stocks and shares ISA depends on your personal circumstances. You’ll need to think about what your goals are, how long you’re able to put the money away for, and how you feel about taking the risks associated with investing your money. You’ll need to decide whether investing in a stocks and shares ISA, saving in a cash ISA, or having one of each is right for you.

Here we’re going to look at the stocks and shares ISA in more detail.

Potential of higher returns

A stocks and shares ISA offers the possibility of better returns in the long run compared to saving in cash. The money you invest is linked to the performance of the stock market and other asset types such as property. These investments, if they do well, have the potential to grow more than the interest rate you could get with a cash account.

Risk versus returns

But, as with all investing, the potential of higher returns in a stocks and shares ISA comes with a greater level of risk: while the value of your investment may go up, there’s always a risk that it could go down. This means you could get back less than the amount you originally invested.

Before investing in a stocks and shares ISA, you need to be aware of your personal attitude to risk and understand that there’s a chance you may lose money.

Investing is for the long term

As with all investing, it’s recommended that you invest your money in a stocks and shares ISA for at least three years, and you keep your money invested for as long as possible. Staying invested for longer allows your investment to grow and to better weather any market volatility. This maximises the potential of increased returns over time.

On the other hand, for your short-term goals and emergency funds, saving in cash may be a better and safer option. If you have cash savings, you’ll get all your money back plus any interest it may have earned. However, this security comes at a cost. The average interest rate offered for cash savings, including cash ISAs, is currently quite low, so your savings won’t grow by much over time. What’s more, low interest rates coupled with higher inflation may actually mean that, over time, the real value of your money goes down.

Is a stocks and shares ISA right for me?

Investing in a stocks and shares ISA could be a good choice for you if:

  • you’re planning for your future and won’t need to access your money within the next few years
  • you’re trying to make the most of your money over the longer term
  • you’re comfortable knowing that the value of your investments could go up or down and that you may lose some money.

And, don’t forget the tax benefits. If you are planning to invest money, investing in a stocks and shares ISA will help you protect any profit or interest earned from tax. In addition, if you’re a higher-rate or additional-rate taxpayer, you’ll also be able to protect dividends from tax.

As with all investing, your capital is at risk. The value of your portfolio with John Lewis Investments can go down as well as up and you may get back less than you invest. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek financial advice.

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