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20 years of ISAs: Is investing right for you?

28 March 2019

3 minute read

April 2019 marks the 20th anniversary of the ISA, yet relatively few people are choosing to invest their ISA allowance, Barclays research reveals. We explore why.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

What you’ll learn:

  • What proportion of people have invested in the stock market over the past two decades.
  • Why people are reluctant to invest.
  • Why you don’t need to be rich to start investing.

Twenty years on since the launch of individual savings accounts (ISAs), many people remain reluctant to invest because they think it’s only for the wealthy, or that it’s too risky.

For many people it will be, as when you invest, you must accept that you might lose money and you could get back less than you put in. You’ll also need to hold investments for the longer-term to give them the best chance of achieving the returns that you’re hoping for.

Only a fifth of the British public have invested in the stock market since 1999, according to new research from Barclays, and are just as likely to put their money into esoteric investments such as art, antiques, jewellery or wine1.

Here, we look at some of the reasons why the UK may be shying away from stocks and shares and dispel some of the myths around them to help people decide if investing is right for them.

Why are people reluctant to invest?

More than four in 10 of those questioned (42%) said they thought putting their money into the stock market was too risky.

Often people are confused about ISA rules, which may be preventing them from making the most of their annual allowance. Seven in 10 (70%) said they didn’t know the annual ISA limit in both the 2018/19 tax year and in the 2019/20 tax year was £20,000, and four in 10 (39%) thought that they’d have to pay more tax if they put their money into an investment ISA than they would if they saved into a cash ISA.

Find out more about how ISA rules work and the tax benefits they offer

Over half of those questioned (51%) said they were put off investing in an ISA because they thought they didn’t have enough money, whilst the same number said they thought they’d need to invest a minimum of £500.

Beating the barriers to investing

There are several barriers which put people off investing, but some of these may be down to a lack of understanding of exactly how it works. Below we look at four obstacles to investing, and look to dispel some misunderstandings. Remember, we don’t offer personal advice, so if you’re not sure if investing is right for you, seek professional financial advice.

Bear in mind too that tax rules can and do change and their effect on you will depend on your individual circumstances, which can also change.

Barrier one: Investing is only for rich people

The ISA allowance may be £20,000, but that doesn’t mean you need £20,000 to invest. In fact, you can usually start investing regularly with much smaller amounts to build up your portfolio. You’ll need to remember to factor in the impact of transaction charges and administration fees, on the value of your investment, which may be greater when you invest regularly and consider whether the level of charges incurred still leave you with a reasonable chance of getting the return that you are looking for.

“If you get into the habit of investing a small amount regularly, you could be surprised at how much it adds up to over time.” said Clare Francis, Director at Barclays Smart Investor. However, remember that there are no guarantees, and you may also find your investment falls in value.

Barrier two: Investing is so risky it’s not worth doing

There’s no escaping the fact that investing involves risk, and you’ll need to be comfortable with the fact you could back less than you put in. However, along with this risk comes the potential for greater returns. You’ll need to hold investments for the longer term to give them the best chance of achieving the returns you’re looking for.

“It’s also good to diversify and avoid putting all your eggs in one basket,” said Clare Francis. “By choosing to invest in a fund rather than buying shares in a single company, you’ll be spreading your money across a number of businesses which helps reduce the risk.”

Barrier three: Investing is too expensive

There are costs associated with investing, but many consider these a price worth paying, particularly given the fact it’s hard to earn inflation-beating returns from cash savings though of course you won’t lose money in cash savings. Before you invest, make sure you’re clear exactly how much you’ll be paying in charges.

Clare Francis said: “Even the most simple investment platforms will charge a fee for running the account and usually an additional fee each time you trade. Equally, it’s worth being aware that, if you choose to invest in funds, they will charge an annual management fee, while stamp duty will be charged on any shares that you trade.”

Barrier four: You need to be really clever to invest

You don’t have to be a financial whizz-kid to consider investing. Anyone can give it a go, but before you proceed, you must be prepared to accept the risks involved, have money you can put away for five years or more, and understand the investments you’re putting your money into.

Clare Francis said: “Most investment platforms will offer a ready-made selection of investments for those starting out, alongside tips and support to help build people’s confidence and experience.”

Please remember that the value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future and their effects on you will depend on your individual circumstances.

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