3 reasons to start a Stocks and Shares ISA in 2025, and they’re not all good ones!

Starting a Stocks and Shares ISA might be one of the best New Year’s resolutions an investor can make. But we need to know why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Want to start a Stocks and Shares ISA in 2025? There are great reasons to do so, but it’s easy to get off on the wrong foot.

They’re tax free

Am I mad to suggest that the tax-free status of an ISA is not a good reason to get one? After all, we can invest up to £20,000 per year and not pay any tax.

That’s on all profits, forever. So even the UK’s thousands of ISA millionaires won’t owe a penny to the Inland Revenue if they cash in.

Should you invest £1,000 in Diploma Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diploma Plc made the list?

See the 6 stocks

Obviously, not paying tax is very desirable. All I’m suggesting is a variant on the old saying: “Don’t let the tax tail wag the investment dog.

I think it’s key, primarily, to invest in something I can research and understand. And then, if there’s a tax-free way to do it, that’s a bonus.

Fortunately, for me, a Stocks and Shares ISA fits both these conditions.

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.

Get rich quick

It’s tempting to look at Nvidia, one of 2024’s big winners. It’s up around 180% in the past 12 months, and a huge 2,200% in five years.

Wow, if I find 2025’s winner, I could get rich practically overnight,” one might think.

The problem is, finding last year’s winners is easy. Next year’s, not so much. And piling a whole load of cash into a stock that we think is likely to soar in the short term opens us to huge risk.

I’ve seen many promising tech growth stocks over the decades. Some have done very well. Some have crashed and burned.

So, thinking that buying shares in an ISA could be a way to quick wealth? I reckon that’s a dangerous way to approach it.

Build long-term wealth

That brings me to the number one reason why I invest in a Stocks and Shares ISA. I want to use one of my own picks, FTSE 100 insurance company Aviva (LSE: AV.), as an example.

Created with Highcharts 11.4.3Aviva Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

We can see from that share price chart that it hasn’t been an overnight millionaire thing. But Aviva has a forecast dividend yield of 7%.

If someone invests £1,000 in Aviva shares, they should have £1,070 after one year’s dividend is added.

And another £70 in dividends after the second year? Actually, no. If they reinvest their dividends each year, they’d have an extra 7% of £1,070 which is £74.90. It’s only about a fiver extra, but thanks to the miracle of compounding, it should grow bigger year after year after year.

Every £1,000 invested annually at this rate could grow to £42,500 in 20 years. Or more than twice that at £98,000 in just a further 10 years.

ISA strategy

Dividends are never guaranteed. And the insurance sector carries plenty of risk, especially in the short term. So I go for diversification across dividend stocks from different sectors to reduce the risk.

And why choose Aviva as an example? The dividend closely matches the average total annual FTSE 100 return over the past 20 years. So I think it’s a realistic target.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »