We’re less than two months away from the end of the 2022-23 Stocks and Shares ISA year. Wow, where did the time go?
Did I save up the maximum tax-free allowance of £20,000 and invest it all in UK shares? I didn’t come close. But that doesn’t stop me wanting to make the best use of my ISA that I can.
So what do people like me need to do between now and April to make the most of this great opportunity? Well, all investors decide on their own investment plans themselves. Each one of us needs to examine our own circumstances and targets, and plan around those.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
It’s easy to put off deciding which shares to buy. And in a volatile year like we’ve just had, many investors might prefer to sit it out and wait. I know we’re always being urged to use as much of our individual allowances as possible. And yes, it’s people like me doing the urging.
Uncertain times
But what if someone is uncomfortable investing in uncertain times? Well, it’s absolutely fine to wait and see how things go. And then start investing when they feel comfortable. I think it would be a mistake to do something just because the headlines are egging us on.
But short-term share price volatility doesn’t bother me in the least. It hasn’t been nice to see the value of my investments falling. But I don’t intend to sell for a long time yet. And in the meantime, I can buy more shares more cheaply.
What difference does a little bit of time make? Let’s look at an investor who can put away £500 per month into a Stocks and Shares ISA. I’ll suppose they achieve an average total return of 6% per year, including dividends, and reinvest it. Now, there’s no way to predict that, and some years will be better, or worse, than others. But it’s just a way to illustrate the difference time can make.
10 years
Our investor, with their £500 per month and annual returns of 6%, should accumulate approximately £81,600 after 10 years. It will depend on timing and regularity of investments. But it should be around that figure.
What if they started a year earlier? After 11 years, the pot would have reached around £92,700. The extra £6,000 invested at the start would have added £11,100 to the eventual total.
How about starting another year earlier? The same investment, after 12 years, would have built up to £104,500. This time, the earlier £6,000 would add another £11,800 to the total.
And it builds up. By the time our ISA had been going for 15 years, the first year’s £6,000 would have grown to £14,000.
Time matters
So, time really matters. The longer we invest, the more we can gain. And more importantly, the early years count the most. That’s because the invested money has longer to benefit from the magic of compound returns.
And it means I’ll do my best to use up some more of this year’s Stocks and Shares ISA allowance before it expires.
