Pros and cons of stocks and shares ISA?

Marvel1

Having been using a cash ISA over the years, a saving of £20,000 is nothing in terms of interest.

I have heard of stocks and shares ISA.

What are the pros and cons? Can you lose money? Any tips before considering it?

Thank you

Tom99

[FONT=Verdana, sans-serif]Yes you can lose money.[/FONT]
[FONT=Verdana, sans-serif]Advice to new investors is generally to invest in a fund rather than individual shares.[/FONT]
[FONT=Verdana, sans-serif]The fund will invest in many different companies thus spreading your risk by sector and even by country if you say choose say a world wide fund.[/FONT]
[FONT=Verdana, sans-serif]The importance difference to a cash investment is that you should look on it as a longer term investment, say at least 5 years.[/FONT]
[FONT=Verdana, sans-serif]Shares can go up and down, how would you feel if your £20,000 became only worth £12,000 next year, would you sell out or be prepared to hang on since in all likely-hood the investment will recover.[/FONT]

Joe_Bloggs

Diversify/Split your assets into smaller parts so that that individual investment setbacks will not appear as sudden overall losses to the grand sum of your portfolio of investments.
Consider the new/innovative tax shelter, IFISA

J_B.

dunstonh

Remember that cash ISAs are typically losing money and have been for the last decade. Most interest rates are less than inflation. So, whilst the balance hasn't dropped, the spending power has. So, its lost money in real terms.

Cash gives you straight line balances. investing balances zig zag. One day up, another day down. You have to average out the ups and downs with a view to long term returns.

if you cant handle the zig zagging then its not for you (although you can invest with different risks to reduce the degree of zig zag).

its really all about timescale. cash is short term. Investing is long term.

Marvel1

Tom99 wrote: »

[FONT=Verdana, sans-serif]Yes you can lose money.[/FONT]
[FONT=Verdana, sans-serif]Advice to new investors is generally to invest in a fund rather than individual shares.[/FONT]
[FONT=Verdana, sans-serif]The fund will invest in many different companies thus spreading your risk by sector and even by country if you say choose say a world wide fund.[/FONT]
[FONT=Verdana, sans-serif]The importance difference to a cash investment is that you should look on it as a longer term investment, say at least 5 years.[/FONT]
[FONT=Verdana, sans-serif]Shares can go up and down, how would you feel if your £20,000 became only worth £12,000 next year, would you sell out or be prepared to hang on since in all likely-hood the investment will recover.[/FONT]

I would be thinking :eek: that it took ages to save it and to lose it with nothing to show for it or a decent holiday.

lpgm

cjdavies wrote: »

I would be thinking :eek: that it took ages to save it and to lose it with nothing to show for it or a decent holiday.

So are you saying that, in this example, you'd sell everything at a loss?

Marvel1

lpgm wrote: »

So are you saying that, in this example, you'd sell everything at a loss?

I don't think in would but I would be on edge and what if I needed the money for something unexpected.

Alexland

cjdavies wrote: »

I don't think in would but I would be on edge and what if I needed the money for something unexpected.

S&S is not intended for easy access - keep your emergency money in the best cash products on the market. If you do have money that you will not need to access for 5+ years (preferably 7-10+) then a diversified S&S fund has a high probability of beating inflation if you can cope with the volatility along the way.

Alex

Tom99

[FONT=Verdana, sans-serif]Just to give you an example of short term stock market volatility and using the FTSE100 index just as an example, since 1st Jan 2000:[/FONT]
[FONT=Verdana, sans-serif]1 year after an investment:[/FONT]
[FONT=Verdana, sans-serif]The index has been up on 60% of days[/FONT]
[FONT=Verdana, sans-serif]The index has been down on 40% of days[/FONT]
[FONT=Verdana, sans-serif]The biggest fall over 1 year is -42% [/FONT]
[FONT=Verdana, sans-serif]The biggest rise over 1 year is +59%[/FONT]

Marvel1

Tank you all, I may invest £10,000 (1/2) - that way I have some emergency money if needed.

Can I also have a cash ISA alongside the S&S ISA?

Do I pick the company to invest in? (I hope not I would have no idea - knowing my luck they would bankrupt - just thinking of Toys R Us and Maplin for some reason).

Is it best not to get obsessed with looking at it every so often and come back in say 5 years and check it?

le_loup

No. When you start you buy a fund or investment trust. They invest in anything between 30 and 100 different companies so your risk is spread.