How Do Stocks and Shares ISAs Work

Are you interested in investing some money but deterred by the ‘risk’ of losing your money? It’s a common concern among beginner investors, but how do stocks and shares ISAs work? Read this article to find out.

What are ISAs?

ISA stands for Individual Savings Account. ISAs were introduced by the then Labour government in 1999 to encourage UK citizens to save or invest for the future. Initially being offered in mini and maxi versions, ISAs have evolved over the years and now come in various shapes and sizes. 

This article is concerned only with stocks and shares ISAs, also called investment ISAs.

How Can this Make me Money?

When you purchase a stocks and shares ISA, you are investing your money. What you are investing in is dependent on the fund or funds you choose as part of your plan. if your funds perform well, you will make money, if they perform badly, you could lose money.

This sounds scary, why would I want to risk my money?

Ultra-low interest rates have been the norm for the last decade, which means that traditional savings accounts can only offer meagre returns. And when inflation is taken into account, savings plans can lose you money in real terms. Therefore, investing in a stocks and shares ISA can offer a chance for an investor to see their money growing.

Can you have more than one Socks & Shares ISA? Find out here.

But how can I see the past performance of a plan

Providers should list the past performance of funds in the Key Investor Information Document which you should read before committing to a plan. These are usually in PDF format and will contain all the information you should require including charges and risk levels. However, as is ALWAYS clearly pointed out in any documentation, ‘Past performance is not a guide to future performance.

Also, take a look at the performance of the FTSE 100 over the years and you will get an idea of the performance over time of an index fund tracking the FTSE 100. 

Where do I begin?

ISA providers today offer an almost unlimited number of options, and it can be baffling for the first time investor to even know where to begin. However, it’s also easier than ever to get started, with many providers offering plans starting from as low as £10 per month.

The plans listed below are only listed for information. I do not endorse these companies or products – and these are not affiliate links.

Two FTSE tracking ISAs on the market at the time of writing (October 2019) are the VIRGIN UK FTSE ALL-SHARE FUND which charges 1.00% Per Annum. And the Legal and General stocks and shares ISA, which if you select ‘We do it for you’ charges 0.61% Per Annum. You will also be required to select your level of risk. Medium Higher and Higher risk options invest in a majority of equities (stocks and shares).

It’s very important that you realise that stocks and shares ISAs are investments – which means you should be prepared to commit to at least five years of investment. If you withdraw your money before then, there’s a high chance that you could lose money. The longer you leave your money alone, the more chance it will have to ride out the inevitable ups and downs of the stock market and show a return on your investment.

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