I was so shocked by this announcement, it’s taken a few days to sink in.
The government has rubber-stamped its decision to allow AIM shares within ISAs.
In my view, the move should prove to be a watershed for anyone wishing to earn handsome gains from ordinary shares.
Indeed, the combination of sheltering high-growth AIM stocks from additional taxes through ISAs can only be GOOD NEWS for the likes of you and me.
What’s more, the government expects the ISA changes to take effect “shortly”, with early reports suggesting actual eligibility in the Autumn.
And there’s further GOOD NEWS.
AIM shares will:
- now be allowed within Child Trust Funds and Junior ISAs;
- still retain their inheritance-tax advantages, and;
- continue to be exempt from stamp duty from next April.
I know this may be hard to believe, but it seems the government has actually tried to help normal investors by reducing red tape and extending tax benefits.
As I say, it has taken a few days for it all to sink in.
8 out of 15 are traded on AIM
Let me say now that AIM shares generally come with greater risks than shares traded on the London exchange’s official list.
You see, the junior market carries its own ‘light-touch’ rule book, which allows young, unproven firms to go public… and which obviously creates a greater chance of shareholder upsets.
To be perfectly blunt, AIM has seen no end of investing disasters.
But AIM is also home to many quality companies.
Indeed, I regularly scour AIM for investing bargains, and eight companies within my 15-share portfolio are in fact traded on AIM.
In my opinion, those eight shares are decent companies that offer a rich mix of dependable dividends, time-tested managers, cash-rich balance sheets and respectable prospects.
And I know full well there are many similar companies traded on the junior platform.
The simple reality is that all shares come with risk
Of course, not everyone agrees AIM shares held in ISAs will be a good thing.
In particular, some journalists at the Financial Times have argued in the past that the new rules will attract investors that don’t understand the risks of AIM.
True enough, nobody wants to see novice ISA investors lose money unnecessarily.
But us Fools – with real-life experience of investing and markets – already realise:
- You can transfer your entire pension into a SIPP and invest the proceeds in the highest-risk AIM share you can find, and;
- The wealth destruction courtesy of the major banks – all of which are or were traded on the main market – dwarfs any calamity seen on AIM.
I think everyone – including the journos at the FT – has to face up to the simple reality that shares always come with risk, that some are riskier than others…
…and if you can’t risk losing any money on shares, don’t bother with stock-market ISAs.
But… if you are prepared to take some risk, the rewards from AIM shares can be enormous.
No oil, gas or gold punts here
Just look at the following big winners from the junior bourse from the last five years:
- Lo-Q: +2,170%
- Dart: +1,222%
- Asos: +1,062%
- Gable: +774%
- Blinkx: +633%
Those gains are equivalent to annual compound returns of between 45% and 85%.
In the mix on that list are theme-park services, low-cost flights, online fashion, commercial insurance and search engines…
…which proves to me you don’t have to punt in the resources sector to win big on AIM.
A 1,333-bagger for anyone buying at 3p
Looking at the list, I must point out that Asos (LSE: ASC) is the classic AIM wonder-stock.
The fashion specialist has recorded sensational growth over the years, boosting sales from £2m towards £600m and turning operating losses into profits approaching £50m.
And the shares? Well, they joined AIM at 20p during 2001 and hit 3p during 2003…
…and now trade at £40.
Yes, that is a 200-bagger for anyone buying on day one and a 1,333-bagger for anyone buying at 3p.
In fact, the market cap now tops £3bn to give Asos a potential place in the FTSE 100 …should the group ever move from AIM to the official list!
One step closer to becoming an ISA millionaire
Let’s face it, we all wished we could have bagged Asos when it traded for pennies ten years ago.
I mean, anyone investing a few thousand pounds back then would surely now have retired with life-long wealth from that single pick.
And the fact the new rules will soon allow such sensational AIM gains to be sheltered entirely from tax should inspire us all to hunt for ‘the next Asos’.
Indeed, AIM’s 1,070 active shares will now double the universe of eligible shares for ISA-only investors.
To me at least, the new rules have taken me one step closer to finding that life-changing, AIM wonder-stock investment…
… and of becoming a real-life ISA millionaire.
And achieving that really would take a few days to sink in!
> Maynard does not own shares in any company mentioned.