You can see the FTSE 100 had some good years and some bad years in that time.
2018 stands out as a poor year. Brexit and uncertainty around the US-China trade war put investors off, harming returns.
Then there were some good years. Yay!
The index returned 18.7%, 19.1% and 17.3% in 2013, 2016 and 2019 respectively.
Overall, for the entire 10 year period, the FTSE 100 generated a total return of 103%.
So if you’d invested £10,000 at the start of 2010, you’d have about £20,398 by the end of 2019.
If you had a stocks and shares ISA and had invested in the FTSE 100 index between 2010 and 2019, you’d have made roughly 7.4% a year. Compare that with average interest rates for savings over that time (around 1.5-2%) and you can see why lots of people turn to investing.
The risks of stocks and shares ISAs
It’s not always plain sailing with stocks and shares. Remember the financial crash in 2008?
The FTSE 100 had a terrible year in 2008, returning -28.3%.
If you’d invested £10,000 in 2008, it would have been worth just £7,170 by the end of the year.
If you’d started investing in 2008 and held your investment until the end of 2017, your annualised return for that 10 year period would be 5.7% – due to the heavy losses of the financial crash.
This is why investment returns become more stable and reliable over a longer time horizon. There’s more time to even out the peaks and troughs.
We’re not trying to spook you, just illustrating the impact of losses and the risks that come with investing.
Cash ISA or stocks and shares ISA?
They’re for different things.
A cash ISA is a better place to put your money if you might need it in the shorter term and want to take minimum risk.
A stocks and shares ISA is the opposite. If you want higher returns over a longer period and can stomach the risks, then this is the one for you.
What can you invest in with a stocks and shares ISA?
With a stocks and shares ISA you can invest in a whole load of things. Here are a few examples:
Corporate bonds. Lend your money to a company in return for interest.
Government bonds. Same as above, but you’re lending to the government.
Shares. Invest in individual companies. Having a share is like having one fraction of the company. If the company’s value goes up the share’s value goes up, if not it goes down.
Funds. These are the most common type of investment. Funds can include shares, bonds, cash, in different combinations.
What else do I need to know?
To open an ISA you have to be 18 or older.
You must be a UK tax resident.
You can only open one stocks and shares ISA per tax year.
You can transfer-in to most new ISAs for free.
Frequently asked questions
Yes you can. You can do this at any time, but individual platforms will have different rules around how much notice they need and whether withdrawing will cost you anything.
Yes. The rules for stocks and shares ISAs are the same as as with any ISA. You can only pay into one each tax year, but can open a new one with a different platform each year if you want.
If you have more than one stocks and shares ISA open, you are only allowed to pay into one of them each tax year.
In the 2019/2020 tax year, the allowance amount is £20,000.
They can. If the shares you’ve bought are dividend paying shares then you’ll get them. You won’t pay tax on these either.
No. Your investment can go up as well as down.
You can put money into any type of ISA in each tax year. The limit is £20,000 over all ISA types.
Yep. You can save up to a maximum of £20,000 per year.
Most people don’t have to report the income and capital gains from their ISAs on their tax return.
Remember though that the tax rules for ISAs can change. Although the government will announce these changes in advance of them taking affect.
Charlie Barton is a publisher at Finder. He specialises in banking and investments products, including banking apps, current accounts, share-dealing platforms and stocks and shares ISAs. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach.
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