The benefits of Stocks & Shares ISAs
Disappointed by financial markets? Who isn’t these days. If government-sponsored tools like Cash ISAs have rapidly gained in popularity, then this is at least partly down to the fact that more and more private individuals are looking for a more reliable option than vesting their hopes in the ups and downs of shares. And yet, there may be profitable alternatives for investors after all. If you have already reached the limit of your Cash ISA and still have money at your disposal, then then Stocks and Shares ISAs may constitute an ideal addition to your portfolio.
Stocks & Shares ISAs: The miracle of risk
What essentially differentiates a Stocks and Share ISA from a Cash ISA? In one word: Risk. To qualify for a Stocks and Shares ISA, there must be a reasonable chance of loosing money on your investment. More specifically, there should be a realistic option of forfeiting on five percent of the invested sum. There’s a long list minutely specifying this definition, but this need not concern you. What should, however, is to understand that although they are, just like Cash ISAs, tax-exempt, Stocks and Shares ISAs are by no means entirely secure instruments, but involve a degree of uncertainty.
Stocks & Shares ISAs: Mixing it up
In an ideal strategy, therefore, Stocks and Shares ISAs should be regarded not just as an alternative to Cash ISAs, but as a complement. You can invest the maximum of £5,340 in Cash ISAs for the 2011/2012 tax year, to create a pool of safe, immediately accessible funds. In addition, you can invest the same sum in equities to create a portfolio perfectly balancing risk and safety. Or, thirdly, you could put all you money, a stately sum of £10.680 in equities. It is this flexibility, which makes Stock and Shares ISAs so particularly attractive.
Providers of Stocks & Shares ISAs
If you’re looking for suitable providers for Stocks & Shares ISAs, then your best point of departure is one of the many fund supermarkets offering you a variety of different products. As with any financial product, after all, differences between Stocks and Shares ISAs can be incisive and the more you are able to compare, the better.
What specifically, should you be paying attention to? Well, first off, many providers used to add massive setting-up fees to their Stock and Shares accounts, thereby significantly reducing their effectiveness. Today, these have all but disappeared, but is is vital to double check on any hidden initial costs nonetheless. Also, all Stocks and Shares accounts come with maintenance- and operating fees, also sometimes referred to as an “annual charge”.
Performance of Stocks and Shares ISAs
Aside from these points, of course, performance of a particular fund is its most important quality. By taking into account the returns of a particular fund for an extended period of time, you will be able to uncover its long-term prospects. Just as with ordinary equities, the higher the risk, the higher the prospective return – but the bigger the chances of actually loosing a lot of money, too.
Because of these inbuilt uncertainties, it is impossible to either recommend or discourage buying Stocks and Shares ISAs – you will have to do a lot of research tailored to your particular situation. Suffice it to say, however, that they represent a highly intriguing alternative to traditional stock ownership – which, in itself, will already be enough of an improvement for most.