Forget Premium Bonds and the National Lottery! I’d invest in a Stocks and Shares ISA today

I think a Stocks and Shares ISA could improve your financial future.

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.

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.

Investing in the stock market through a Stocks and Shares ISA has become simpler and cheaper over recent years. Online share-dealing has helped to make Stocks and Shares ISAs more attractive to a wider range of people, yet they are still not as popular as they perhaps should be, given their long-term return potential and tax efficiency.

Certainly, the return potential of Premium Bonds and the National Lottery may be higher than the stock market. But, realistically, the chances of winning £1m+ on either of those products are slim. As such, now may be the right time to open an ISA and buy a range of FTSE 100 and FTSE 250 stocks for the long run.

Realistic returns

The chances of winning the National Lottery jackpot are just one in 45m. This means that the vast majority of people who buy lottery tickets are likely to lose their stake. Likewise, Premium Bond winners are few and far between. This means that the average annual return on Premium Bonds is around 1.4%.

By contrast, it is realistic to assume that investors can generate a high-single-digit annualised return from the stock market. Evidence of this can be seen in the FTSE 100’s past performance. Since its inception in 1984, the index has recorded annualised total returns of around 9%. Although these returns have not been uniform, investing over a long period could mean that you are able to generate similar returns.

Tax efficiency

As with Premium Bond and National Lottery wins, investing through a Stocks and Shares ISA is tax-free. Unlike a bog-standard share-dealing account, there are no taxes charged on the investment gains and dividends made within an ISA. This could mean that your portfolio has a better chance of improving your financial future – especially with taxes on dividends, for example, having increased in recent years as a result of the dividend allowance being reduced to £2,000 per annum.

In addition, withdrawals from a Stocks and Shares ISA are tax-free. This could make them more attractive to some investors than a SIPP or workplace pension – especially since withdrawals can be made from ISAs at any time without penalty.

Accessibility

As mentioned, the growth in online share-dealing has made Stocks and Shares ISA more accessible. It is possible to open an ISA online in a matter of minutes, while the cost of administering it can be minimal. In addition, building a diverse range of shares is cheaper and simpler as a result of services such as regular investing. They can reduce dealing costs to as little as £1.50 per trade and help to improve your overall returns.

Therefore, while Premium Bonds and the National Lottery may provide the chance to win £1m+, the reality is that investing modest amounts in shares through an ISA could be a more profitable move in the long run.

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.

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

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »