You don’t need to be rich to invest in an ISA

It’s wrong to think you need to be rich to invest. While the idea of investing is often associated with someone showing off their collection of fast cars and fancy jewellery, investing is something for the masses. You can start with as little as £25 a month in an ISA and build up a pot that could have a meaningful impact on your life.

Just because ISAs come with a generous annual allowance of £20,000 each year, doesn’t mean you have to be able to put away the full amount every year. The average amount paid into ISAs per person across the UK was less than £6,000 in the most recent stats from HMRC.

That’s still a lot of money, at around £500 per month, and you shouldn’t worry if you’ve got less to put away. Many providers aim to make tax-free investing accessible – like AJ Bell’s Stocks and shares ISA with a minimum investment of £25 per month. That’s the equivalent of a takeaway or a round of drinks in the pub.

Tax-free investing

ISAs are a clever way to let you invest tax-free. You get to keep all your ISA investment returns, as well as any income from dividends or bond interest payments.

These ISA tax benefits are more valuable than ever when many other allowances related to investing are being cut. For example, the amount you can earn outside of ISAs and pensions before paying dividend tax is now only £500 a year.

Regular investing can keep you on track

You don’t have to have a big lump sum of money to get invested. Investing automatically on a regular basis brings simplicity to your finances each month, while also helping you smooth out the ups and downs of the market. That’s because, if your monthly investment happens when prices are lower, you’ll get more shares or fund units than before, or if prices are higher one month you’ll get fewer units. Over time this works to smooth out your returns.

Lots of people find regular investing helps them keep on track with their investment goals as it takes away the worry of when to pick the best time to invest a chunk of money. To quote a financial truth – “it’s about time in the market, not timing the market”.

Let’s say you invest £25 every month into an ISA, achieving 5% investment return a year excluding charges. Your ISA would be worth £1,986 after three years – an impressive amount considering the relatively small sum you’re putting away each month.

And if you get a pay rise, you could consider increasing your monthly contributions to your ISA. You can also pay in ad-hoc lump sums, such as if you get money for a birthday or Christmas present or if you receive a bonus at work.

If you’ve already got investments with a different provider, it’s easy to move them to AJ Bell.