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Scared of shares? Stocks and shares ISAs made easy

Opening a stocks and shares ISA may seem daunting, but there's no reason to be scared of shares. Read on...

For many people, a stocks and shares ISA represents their first foray into the world of investing.

If you're ready to invest but perhaps feel a little uncertain, allow us to lighten the load by helping you master the basics.

Why invest?

Investing can be a great way to grow your money over the medium to long term, and help you achieve your financial goals.

The interest rates offered by some savings accounts (particularly while the Bank of England base rate is low) may not keep pace with inflation.

This means that, over time, the value of your money effectively declines.

Investing in the stockmarket via a stocks and shares ISA, and over a medium to long timeframe, may help you beat inflation.

And the longer you keep your money invested, the more chance it has to both grow, and recover from any dips in the market.

What’s the catch?

How risky are you? Are you more of a risk taker, or are you more risk averse?

Investing in a stocks and shares ISA comes with an element of risk.

The value of your investment can rise and fall, and it's possible you won't get back the full amount you invested.

Even though investing over the longer term offers the potential for significant growth, it is this 'risk warning' (as we call it) that leaves some feeling a bit edgy.

But in a stocks and shares ISA, you can invest in a way that matches how you feel about risk.

You can choose a fund or funds which are considered more or less risky because of the investments they hold.

How long should I invest for?

We believe investing in a stocks and shares ISA is for the medium to long term (at least five years).

So even though you have access to your investments, there probably are better alternatives if you need quick access to your cash.

Long-term investing also gives your money more time to recover from possible losses during dips in the market.

What should I consider before I invest in a stocks and shares ISA?

Though you may not know what it is yet, you have an 'attitude to risk'.

This determines the level of investment risk you’re willing to take and helps you choose a fund (or funds) in tune with your attitude to risk.

What's the difference between a cash ISA and a stocks and shares ISA?

Cash ISAs are similar to standard savings accounts (i.e. your money isn't invested, but earns interest), but with one powerful extra: they are also a tax shelter.

This means you won't pay any tax on the interest your money earns.

On the other hand, stocks and shares ISAs provide you with a tax-efficient way to invest in the stock market.

They are structured differently to cash ISAs in that you invest in funds which then invest in the stock market.

Each fund pools your money with other investors and is run by an investment manager.

How much can I invest?

In the current tax year (which runs until 5 April 2020) the ISA limit for both cash and stocks and shares ISAs is £20,000. This means you can invest £20,000 as a maximum across both.

For example, you could invest £18,000 in a stocks and shares ISA and £2,000 in a cash ISA.

And, just like saving, you can either invest a lump sum or a regular amount every month, if you find that more manageable.

A point of note too: Many ISAs are 'flexible', meaning you can withdraw and replace money in your ISA as long as it's in the same tax year (and within the £20,000 limit of course).

But not all providers offer this, so it's worth checking.

How do I know which option is best for me?

If you’re saving for short-term goals, you may want to consider keeping your money in a standard bank account or cash ISA.

Investing is for goals you see yourself achieving five, 10, or even 20 years down the line.

And those goals, as well as their timeframes, should largely inform which investments you choose.

What now?

Find out more about the Zurich stocks and shares ISA.

This content was first published in May 2017 and last updated in April 2019

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