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 British American Tobacco 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 British American Tobacco 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.

Should you buy British American Tobacco now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »