I know it’s only November, but it’s December shortly and the Christmas holidays will take up much of our attention. Then there’s the New Year followed by forcing ourselves to get up and get back to work. Before you know it, ISA time has come round again — and thousands leave it until the last minute every year.
Many people fail to make as much use of their annual allowance as they can, and I think every missed extra pound you could have invested in shares whose future price gains would all be tax-free is a wasted opportunity.
The annual allowance currently stands at £20,000, and very few of us have that much to invest every year — I certainly don’t. But even putting aside an extra £20 per week would give you a further £1,040 over the year to invest, and it’s easy to underestimate how much that could amount to.
How much?
It might shock you, in fact, to learn that every £1,000 you invest this year could turn into £5,700 in 30 years if you achieve an annual return of 6% and reinvest all your profits. And I think that is well within the bounds of possibility if you put your long-term savings into a stocks and shares ISA (and forget the cash ISA, which I see as a waste of time).
Even if you’re not going to get close to this year’s ISA allowance, every time you get cash from the ATM to spend, maybe consider withdrawing £20 less and transferring that much to your ISA?
If you do that once per week from today until April’s ISA deadline, you’ll have an extra £400 to invest — and remember that any unused allowance is lost the minute the deadline passes.
The best ISA
Out of a total of 10.6 million ISA accounts opened in the 2017-18 year, a full 72% of those were cash ISAs. And when I look at the pitiful interest rates being offered, that figure almost makes me weep.
Cash ISAs are typically offering returns of only around 1.5% these days, and that’s not even enough to keep pace with inflation. Even without paying tax, your money will still be worth less when you take it out than when you put it in — and that’s no way to invest for your long-term future.
One upside of the 2017-18 statistics is that the difference in the amounts invested in the two kinds of ISAs at least goes the opposite way, with around twice as much invested per stocks and shares ISA as per cash ISA.
In fact, the average stocks and shares ISA attracted an investment of around £10,000 that year, with cash ISAs typically holding around half that — and that does cheer me up a little.
Thinking ahead
Even though I won’t get close to my ISA allowance this year, I still like to think ahead to next year and start planning for the kinds of shares I’d like to add for the long term. And depending on the way Brexit goes, I can’t help feeling 2019 could be a year with some great Footsie bargains.
But even if you’re not quite as obsessive as me, I do think you’d do well to get as much as you can into a stocks and shares ISA this year — and don’t leave it until April.