The Motley Fool

The £20K ISA allowance is too big for me! I’d start small, investing £50 a month in UK shares

Image source: Getty Images

I think the decision to extend the ISA allowance to £20,000 may have backfired by deterring some people from investing in UK shares, rather than encouraging them.

The Stocks and Shares ISA allowance is now so big, friends tell me they won’t even come close to using the full amount, so don’t bother investing at all. They have concluded that investing in UK shares is only for the super wealthy, not for them. I think they’re wrong.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I reckon that investing in top UK shares is one of the best ways of building wealth for my retirement. And I don’t need to invest £20,000 a year to take advantage of them. In fact, I would start with much, much less.

I’d buy UK shares little and often

Yet my friends say the inflated ISA allowance has taken away their urgency. When it was £7,000 a year, they raced to use their allowance before they lost it for good at midnight on 5 April.

They can’t get so worked up about it now. Why worry about missing out on this year’s £20,000 allowance when they will get another massive allowance on 6 April? The upshot is that some have become too relaxed.

I’m not doing that, because I know investing is a long-term game and you have to stick at it to succeed. It’ll take me 35 or 40 years to build enough wealth to retire on, from rising UK share prices and compounding dividends.

So I would ignore that £20,000 limit and start small by investing £50 a month instead. Drip-feeding money into UK shares every month has two big advantages. First, it smoothes over the ups and downs of stock market volatility, helping me sleep at night. Second, I actually benefit when stock markets fall, as my monthly contribution picks up more stock. Actually, there is a third advantage. After a while, I won’t even notice the money leaving my account, but will budget around it.

I can’t use all of my ISA allowance

If I invested £50 a month in UK shares and they rose at an average rate of 6% a year after charges, I would have £98,429 after 40 years. If I increased my monthly contribution by 3% each year, to keep up with rising pay and prices, I would have £148,902.

My small monthly acorns will have grown into something substantial, even if it has taken me decades. I wouldn’t stop there. I would also throw in lump sums, too, whenever I had a bit of extra money to hand. And I’d review and increase the amount I invested monthly if I could afford to as well.

What I wouldn’t do, is worry about using my full £20,000 ISA allowance. I can build a big enough nest egg for my retirement, by investing a fraction of that in UK shares.

I'd consider investing my money in shares like these.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Harvey Jones 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.