Over the past few years of very low interest rates, many UK investors have abandoned their Cash ISAs and moved to Stocks and Shares ISAs. I think that’s great news, as shares have beaten cash savings hands down over the past century and more.
But inflation is soaring and interest rates are rising, and stock markets around the world are falling. Will these gloomy events reverse the trend? I hope not, and I want to explain why I think 2022 is great for Stocks and Shares ISA investors.
If I were to retire now, and rely on my current investments to provide a contribution to my income, the result would be mixed. I have some dividend shares, which are paying out no matter where the share prices are going.
But I also have some growth share investments, and I don’t want to have to sell when they’re down.
But I’m not selling and retiring. No, I’m still buying. And share price falls are giving me chances to buy at great prices. I’ll examine a couple of my individual Stocks and Shares ISA investments as examples.
Dividend share
Lloyds Banking Group shares have fallen 12% since the start of 2022, and are down 9% over the past 12 months.
Lloyds’ dividend last year provided a yield of 4.2%. It was very well covered by earnings, and I’m expecting it to keep on rising over the long term.
But the shares are now down below 44p. And the 2p per share paid in 2021 would yield 4.5% this year. That’s not a huge improvement, but even that modest increase compounded over a decade or more can make a difference.
Do the red numbers next to Lloyds on my Stocks and Shares ISA statement make me sad? Nope. Instead, I have some cash ready, and I intend to buy more. The fall will help me lock in even better future dividend yields.
Growth share
Shares in online fashion retailer boohoo have plummeted 80% over the past 12 months. And the investment I made a year or so is now worth a lot less than I paid.
If I wanted to sell growth shares today to generate cash, that would be bad news. But I don’t, so should I be seeing this as an opportunity to buy more?
I already have done. I doubled up my initial cash amount, and this time round I snapped up more than three times as many shares with the same money.
Things might look better for me today if boohoo hadn’t fallen at all. But if the stock regains any significant part of its loss, I’m now likely to be better off overall.
Stocks and Shares ISA boost
Both of these investments face significant risks from an economic downturn. The retail sector is suffering directly. And when businesses aren’t boosting bank profits, those suffer too.
But my key point is still valid. If we’re investing for decades and our Stocks and Shares ISAs fall, that’s good news rather than bad. Because it means we can buy even more shares, even cheaper.