Like me, you might be finding that the days are going slowly, but the months are flying by. To that end, we’re in August, with several risk events on the horizon through to the end of the year. They’ll impact our lives in different ways, as well as our investments. For most of us, that includes our Stocks and Shares ISA. It’s the tool most of us use to house our stocks in the most tax-efficient way. With an allowance of £20,000 per year, it’s likely you hold most (if not all) of your stocks and shares within the ISA.
Your Stocks and Shares ISA has already survived the stock market crash in March. The risk event that caused this was the closing down of economies due to the coronavirus. With lockdown being enforced around the world, consumer spending dried up. This was compounded by a lack of social interaction and travel. With the exception of firms offering basic necessities, the pandemic negatively impacted revenue for most FTSE 100 businesses.
For most of April, the UK was registering new case numbers of at least 4,000 per day. This is now down to around 700 per day. This move lower has been well correlated with the FTSE 100 index rallying from the lows seen towards the end of the first quarter. So it’s logical to think that a second wave of the virus could pose a big risk for the stocks within your ISA. Yet, given that the second wave of the virus is not confirmed, I don’t believe it’s the largest risk to my ISA for the rest of the year.
Other major risks
This turns me to Brexit. This is a very real risk, given that there’s a hard deadline at the end of this year. The UK government have made it clear they want to get a deal done before December. As we saw at the back end of last year, the FTSE 100 is very sensitive to Brexit headlines. This is especially true when things come down to the wire.
One other risk that I think could start to come on investors’ radars soon is negative interest rates. Current rates stand at 0.1%, but with the economy struggling, there is a lot of chatter about taking rates below zero. This isn’t unheard of; Europe has been in this situation of negative rates for several years. This could be a definite short-term risk to stocks within the ISA, as it gives the impression that the economy is really struggling. But in the longer term, this risk could turn into a positive. Firms will be able to borrow money at cheaper levels, and more people are likely to invest in stocks given the opportunity cost of holding cash.
Volatility represents ISA opportunities
You may disagree with me on the above risks, and the priority of them. It’s very subjective! But the main takeaway from this is that you need to keep a close eye on your Stocks and Shares ISA. Not only this, but the volatility we’ll likely see from any of the above risks materialising could present an opportunity to buy. I’ve outlined one FTSE 100 bargain I’d considering buying already due to the coronavirus here.
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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.