A Stocks and Shares ISA can be a gift to private investors.
At the last count, there were around 4,000 ISA millionaires in the UK, with a handful of multi-millionaires. Just think of all those lovely tax-free millions.
But I can see some reasons why the stock market is not for everyone.
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#1 – Haven’t got a penny
We don’t need a lot of money to open an ISA. The big providers these days will let us start with as little as a £25 regular monthly saving.
But some people won’t actually have that, and can’t lay their hands on any emergency cash they might need. And many in the UK carry a lot of debt too.
So, I’d pay down any debt (excluding mortgage debt, which is relatively cheap). And I’d save an emergency stash of cash first, enough for two or three months’ income.
And only then would I start a Stocks and Shares ISA
#2 – Can’t handle risk
I had a friend who had a minimum wage job. But he worked hard, did all the overtime he could, and he saved a decent sum.
He had his savings in a Cash ISA. We used to talk about stocks and shares instead, and whether that might be better for him.
But he couldn’t cope with risk at all. If he saw his shares fall by even a few hundred pounds, he’d be awake at night worrying about all the hours he’d have to work to make it back.
I think he was right to keep away from shares.
#3 – Close to retirement
A Stocks and Shares ISA is really best for those with a long-term view. As ace investor Warren Buffett says, if I wasn’t going to hold a share for 10 years, I wouldn’t think of owning it for 10 minutes.
But what happens when we get close to retirement, need the money, and don’t have that long-term horizon any more?
Well, I won’t cash in my whole ISA when I get there. But I will start moving money away, and I intend to hold a fair chunk of it in cash.
When short-term need outweighs the long-term benefit, the stock market might not be the best idea.
#4 – Don’t need the cash
What about someone who just doesn’t need it?
I once met a couple who’d built up a business, and then sold it and retired.
They had more than enough income from bank savings to live well, and have all the holidays they liked. And there was nobody they wanted to leave money to.
They’d taken plenty of risk building up their business, so they weren’t afraid of it. They just didn’t need it.
I think they were doing what was right for them.
#5 – Erm, Hmm…
I’m struggling now. I’m sure some people can think of other rational reasons why a Stocks and Shares ISA might be a bad idea.
Don’t like money? Trust the State Pension? Nope, I’m out of ideas. I’d just get one, myself. I think investing in shares through an ISA really is the best vehicle for building wealth and those millionaires show just what can be achieved.
