Compared to Cash ISAs, Stocks and Shares ISAs are best suited towards a medium to long term investment outlook. A Stocks and Shares ISA allow you to put money into collective investment vehicles such as unit trusts and corporate bonds. It is also possible to invest in single shares under an ISA, commonly known as a ‘self select’ Stocks and Shares ISA. Unlike a cash ISA (limited at 50% of the toal ISA allowance), the full £11,280 ISA allowance can be invested into a Stocks and Shares ISA.
It is worth noting, that a Stocks and Shares ISA is not totally tax free. For example, buying a unit trust through an ISA will only save you tax if you are expected to pay capital gains tax or are a higher rate taxpayer.
Commonly, investment trusts are placed into Stocks and Shares ISAs. These are essentially pooled investments in which a fund manager selects a variety of shares based on industries or locations. The value of these investments then depends on the performance of the shares selected. For example, an ‘emerging markets’ fund may rely on companies selected in China to perform well in order to increase the value of the investment. There are numerous fund providers in existance including Black Rock, Fidelity, Jupiter and Artemis.
If you are considering investing within a fund for your Stocks and Shares ISA tax wrapper, it is also important to understand the charges. The main charges are an initial commission as well as an annual management charge for the fund.
Summary of a Stocks and Shares ISA
- It is possible to invest the total yearly ISA allowance of £11,280 within a Stocks and Shares ISA.
- A Stocks and Shares ISA is far more risky than a cash ISA as you are exposed to the volatility of stock markets.
- Common practice is to invest in ‘funds’ through a Stocks and Shares ISA. These are investment vehicles in which money is pooled together and invested in certain industries and regions.
- There are potentially over 2,000 funds in which you can invest in. A bank will typically provide a selection of these in line with risk profiles. A ‘fund supermarket’ will provide you with greater choice if you feel you are totally confident in your investment decisions.
- They are typically suited to a medium to long term outlook.