Five reasons to invest

1. Stocks beat cash

Are you doing well in your career and find you have a nice bit of spare cash at the end of the month after paying the bills and topping up your pension? Rather than putting this cash in a low interest deposit account, you should seriously consider investing it in the markets.

A Stocks and Shares ISA with an annual contribution limit of £15,240 is the perfect place to park your money. The annual Barclays Equity Gilt Study* shows that over the last 50 years – once the impact of inflation is stripped out – stocks and shares have delivered a return of 5.7% compared with a return of just 1.5% from cash.

It’s also worth noting that the historic returns from cash were achieved when rates on most deposit accounts were much higher than they are now. 

2. Tax savings can be big

The savings associated with sheltering your investments in an ISA can be significant over time.

You pay no capital gains tax (18% or 28% outside an ISA depending on your circumstances) or income tax on funds held within an ISA.
There is the potential to really tap the wealth generating power of the stock market by reinvesting dividends from company shares and funds that pay these cash rewards.

The FTSE All-Share has generated an average annual total return of 11.4% since its inception in 1962, made up of a 7.1% annual capital growth rate and an average 4.3% dividend yield.

The inflation-busting power of shares is neatly illustrated when you consider a £39,746 investment today could be worth £1,000,000 in 30 years’ time with dividends reinvested, assuming an 11.4% annual rate of return can be sustained. Please note there is no guarantee this will happen.

The compounding effect achieved by reinvesting dividends accounts for about two-thirds of this 25-fold gain.** Please note that the figures exclude the fees you would pay to buy and hold investments.

3. It’s easy to open an ISA

You can open a Stocks and Shares ISA with AJ Bell Youinvest in minutes online. 

If you are not sure about individual stock selections you can invest in funds where a professional makes the investment decisions for you. The fund manager will charge an annual management fee for their service, typically 1.5%.

AJ Bell Youinvest also has a guided investment service that offers three different portfolios based on your risk appetite.

Investing isn’t guaranteed to give you a profit on the money you put in an ISA and your investments can go down in value as well as go up. It is therefore important to understand the risks that go with using a Stocks and Shares ISA.

4. ISAs are accessible

An ISA can be considered a good vehicle for holding investments which can be sold and cash returned to you quickly if you need to access the money. In comparison, your pension money is locked away until you reach age 55. That means the ISA is perfect for saving up to meet the costs of school fees, holidays and other big ticket items. You can sell stocks or funds and access the proceeds as soon as you need that money.

With an AJ Bell Youinvest Stocks and Shares ISA the funds should be in a nominated bank account within five working days. Remember once money has been taken out of the ISA it cannot be paid back if you have already reached your annual ISA allowance for the current tax year. 

5. ISAs are flexible

You can use an ISA to buy and sell a wide range of permitted investments including UK and overseas shares, funds and bonds.

A new Innovative Finance ISA will allow you to access peer-to-peer loans from April 2016 and the list of qualifying investments for the new ISA wrapper will be extended in autumn 2016 to include debt securities offered via crowdfunding platforms. Please note that AJ Bell Youinvest has no plans at present to offer this product.

*Source: Barclays Equity Gilt Study 2015

**Source: SHARES magazine

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