Education

Opening your stocks and shares ISA - a checklist

Please refer to the glossary for an explanation of the investment terms used throughout this article.

If you are thinking of joining the 2.6 million savers who invest tax-efficiently into stocks and shares ISAs, or individual saving accounts, there’s so much choice it might be difficult to know where to start.

Not only are there different ways to invest – ISAs being only one – but there are many investment providers, each with their own range of products. Finding the right option will depend on your financial goals and circumstances, as well as your attitude towards risk.

Investing always involves some risk. You are sacrificing some of the security of cash savings (which the UK Financial Services Compensation Scheme protects up to £85,000) to access potentially higher financial returns. Some people can tolerate more investment risk than others and can invest accordingly, as different types of assets have their own risk and return profiles.

Whatever you choose to invest in, ISAs carry an advantage: you’ll ultimately enjoy any income or gains from investments held within your ISA without having to pay any personal tax.

To help you get started, here are some points you could benefit from thinking about at the start of your ISA investment journey.

• Objectives – The first step, before putting any of your money to work, should be to clearly set your financial goals. Only by defining what you want to realistically achieve, and over what timeframe, can you make appropriate investments. The level of risk that you are comfortable taking, as well as how long you are investing for, should always shape your financial decisions.


• Financial advice – If investing is new to you, or if you could use some independent advice, a financial adviser could help you choose the most suitable strategy and products for your circumstances. You should expect to pay for this service, normally either a flat fee or a percentage of the amount you’re investing.


• Diversification – By investing not only in several assets, but across different types of assets, you can reduce your exposure to individual under performance. If your investments in one region or sector underperform over any given period, those in another region or sector might perform better and could balance the portfolio.


• Funds – Professionally managed funds, which package many assets into one single investment, can offer instant diversification. Funds often – although not always – focus on one type of asset, so investing in several might be an effective way to diversify your investments further.


• Platforms – Whether you’re looking to invest via funds or hold individual assets directly, you can only open one stocks and shares ISA in any given tax year. Online platforms can allow you to combine these approaches or invest in funds by different managers. If you are investing in funds offered by a single manager, you could open your ISA directly with them, possibly at a lower cost.


• Fees and charges – It’s important that you understand all of the costs of investing, as these will affect the value of your investment. Be aware that there can be several layers of charges, depending on how you invest, ranging from fund manager charges to platform fees and dealing charges. Here is our guide to the costs of investing. As with anything, cheaper does not always mean better. Above all, you should be happy that your charges represent fair value.


• Lump sum or regular investing – Depending on your circumstances, it might make more financial sense to feed your money into the market regularly rather than in one chunk. The danger with lump sum investments is that you risk buying assets at the wrong time, when they are overpriced. Investing regular sums shifts the emphasis away from timing the market, to time in it.

Important information

As with all investments, the value of your ISA investments will fluctuate, falling as well as rising, and you may not get back the original amount you put in. In an ISA, any income you receive, and any capital gains from a rise in value of your investments, will be free from personal taxation.

When you're deciding how to invest, it's important to remember that ISA tax rules may change in the future and ISA tax advantages depend on your individual circumstances.

We are unable to give any financial advice, and the views expressed in this article should not be taken as any kind of recommendation or forecast. If you are unsure about the suitability of your investment, speak to your financial adviser.