With the current tax year ending on 5 April, there’s only around a month for investors to pay money into their ISAs. Once the new tax year starts, a new allowance of £15,240 is available and the allowance for the 2015/16 financial year will have been and gone. Therefore, long-term investors who are focused on bringing retirement a step closer may wish to invest in shares before the ISA deadline.
Clearly, ISAs are a relatively efficient means of investing for the long term. The cost of opening and operating one is very low and a major benefit of having an ISA versus a pension is that the money can be withdrawn at any point before retirement. Although this won’t be helpful to anyone’s long-term financial outlook, the ability to withdraw money from an ISA provides a useful safety net in case of redundancy, sickness or other emergency.
Furthermore, ISAs are also highly tax efficient. Although the money paid in has already been taxed, any capital gains made within the ISA aren’t taxed and all withdrawals are also tax-free. And with dividends received in an ISA not counting towards the £5,000 allowance each year (above which dividends are taxed at 7.5% for basic rate taxpayers), ISAs remain a tax-efficient means of planning for retirement.
Act Now!
Of course, investing now rather than waiting until next year or some other future date is also highly beneficial. That’s partly because of the effects of compounding, which allows the returns received to themselves earn a return. In the long run, even a relatively modest annual return can really add up.
For example, the FTSE 100 has recorded a total return of around 9.3% since inception in 1984. Posting returns at that rate over 10 years would turn a £1,000 investment into £2433, while over 30 years it would cause it to rise to a much more appealing £14,408. As such, investing as soon as possible tends to have a positive impact on an investor’s retirement plans.
Now could also be a good time to invest because the FTSE 100 appears to offer good value for money. With it having fallen by 12.5% in the last year, it now trades on a price-to-earnings (P/E) ratio of just 13, which could rise much higher. And with the FTSE 100 having a yield of over 4%, it seems to offer excellent income prospects too.
Profit from uncertainty
Certainly, the global economy is facing a considerable degree of uncertainty and the UK itself is at a crossroads when it comes to the issue of the EU. But for long-term investors who have cash to spare, investing now through as ISA could be a sound move since history has shown that the best buying opportunities tend to come along when the future appears to be at its most uncertain.
