Top tips for investing in stocks and shares ISAs

Mhari Aurora
·3 min read
Investing in a stocks and shares ISA could be a great way to use your ISA allowance before the end of the tax year. Photo: Getty.
Investing in a stocks and shares ISA could be a great way to use your ISA allowance before the end of the tax year. Photo: Getty.

As the end of the tax year fast approaches it might be time to think about using your ISA allowance, and one way to do this could be to invest in a stocks and shares ISA.

With a stocks and shares ISA, you don’t pay capital gains tax (CGT) on any gains you make, so if you exceed the £12,300 ($16,762) CGT limit, this could be a good option for you.

Here are some top tips for investing in a stocks and shares ISA:

Know what you want

Be clear about why you are investing; what you wish to gain; what your timescale is; and what level of risk you are comfortable with.

If you are saving for a wedding or buying a house invest in relation to your personal timescale.

Once you have a clear, defined goal it makes it much easier to find the right ISA provider for you.

Watch: How to save money on a low income

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Decide your strategy

Choose how much you want to contribute to your ISA and how often.

How you pay into your ISA depends on whether you want to inject a lump sum, or if you would prefer pay in small amounts in the new tax year.

Paying in lump sum allows you to use the tax-free allowance before the end of the tax year, but paying in smaller regular amounts can, in fact, provide a better return on your investment.

Start early

The earlier you begin investing your money, the longer time you will have to build up interest — this is called compounding.

Compounding is the continuous addition of interest on your money, and over time it can develop into considerable assets.

Expect the unexpected

Investing in a stocks and shares ISA is not necessarily a one-way ticket to success, and it’s important to be aware of the risks and to be flexible if things change.

Associate director for personal investing at investment management firm, Fidelity International, Emma-Lou Montgomery, said: “Being ‘prepared for the unexpected’ used to be little more than a figure of speech.

“But after the past year, when it has become our day-to-day reality, we now know how important it is to have something up your sleeve, should the unexpected happen.”

READ MORE: European and Asian stocks make gains after Wall Street rally

Diversify your portfolio

Spreading your investments over various assets is a great way to protect yourself from market volatility.

Holding bonds, property and equity in different countries across the world could be a way of keeping your investment portfolio varied and more robust.

Do thorough research before expanding your assets to be sure you are well-informed and making the best choice for you.

Know your ISAs

It is commonly misunderstood that you can’t open more than one ISA in the same tax year, however it is more nuanced than that.

You can hold and save into more than one type of ISA as long as your contributions don’t go over the annual threshold, so you can have both a cash ISA and a stocks and shares ISA.

Cash ISAs are a relatively low-risk way of investing your money, but it could lose some of its value due to current low interest rates.

Investing in stocks and shares comes with more risk, but can lead to much larger returns.

If your savings are inside your ISA, you can still save or invest them while taking advantage of the tax-free perks.

Watch: What are negative interest rates?