ISA - time to take the plunge with stocks and shares?

[morningtoncrescent62]

I'm in the fortunate position of earning more than I spend. It hasn't always been the case by any means, but since my children left home I've been making capital repayments on my mortgage and paying a much larger proportion than I need to into my pension. Last year I took out a cash ISA for the first time, and last week I went into the building society (Nationwide) intending to do the same for this year's allowance. The guy there suggested I think about a stocks and shares ISA as I'm unlikely to need the money any time soon. I don't have a definite saving goal, beyond that I'm sort-of-saving so that I have the option to retire in my early-mid 60s when I get there (55 at the moment).

So now I'm thinking, should I go for the long-term fixed-rate ISA like I'd planned, or make a first-time foray into an investment one? I have a history of being risk-averse with money, largely the result of being on a very low income in my 20s and 30s when my children were young. But perhaps it's time to do it, now, while I don't have a pressing need for the money?

Also, if I were to decide on an investment ISA, are Nationwide a good provider? I've looked up a couple of comparison sites and they don't seem to feature at all.

Probably something you should take professional advice on, OP, particularly as you're thinking of retiring. I have recently cashed in a shares ISA, though, and probably won't reinvest until the market falls - it is currently high and has been for a while.

No, nationwide only offer a ridiculously restrictive range of funds from what I can see, it is not a full service broker at all. Look at the broker comparison table on monevator website to help work out your best options ("best" varies according to your wealth, anticipated number transactions etc).

Whether the stock market (in addition to your existing pension funds) is right for you depends on many different things. But in principle, if you are able to invest your £20k allowance this year in a FTSE100 based ETF and can leave it there on accumulation basis for 10 years, it is statistically almost impossible not to do better than leaving in a cash ISA in GBP given this country's interest rates Vs inflation rates.

US markets are considered (very) high...but UK markets are not really high right now. The effect of bouncy GBP and political risks facing some key industries in UK are certainly a gamble though, but not insurmountable if investing through a well diversified etf. In my humble opinion, of course.

You don’t have a huge timeframe (5-7 years) and say you are very risk averse so I’m not sure if stocks and shares are right for you. Did the adviser go through any risk profiling etc? Would you be comfortable with a loss? During the recent correction, some of my funds were down 10-15% and I was fine with that as i have a long timeframe for investing (10-15 years plus). Most have recovered and are now positive but if I had lost my nerve and sold, I’d have lost quite a bit of money. I don’t know how much of a loss i would be ok with but it’s a good exercise to think about how a 20%, 40% etc loss would affect you. If you do go ahead, do a bit more research and don’t let the bank sell you a product that might not be right.

Thank you, all, for useful comments. I think you've confirmed what I was beginning to think, that I should get some independent advice first. I appreciate how lucky I am to have spare cash, but I don't have so much of it that I can afford to splash it around without being sufficiently aware of what I'm doing!

How much are you planning to invest? For small sums, the cost of professional advice may easily be much higher than the extra return you'd get from shares vs cash ISA!

If you do consult an FCA-authorised IFA, they will be legally obliged to explain what their charges are. You can decide then whether it is worth it.

I am a DIY investor. I agree that over the medium to long term, stocks and shares will almost certainly outperform cash. Unless you are a committed investor who is constantly watching the markets, it will be quite difficult to time the market to buy at the lowest point and sell at the highest.

The very basic tricks that I use is to drip through my investments by way of monthly contributions to the ISA (called dollar cost averaging) and to buy passive index-linked funds which have very low annual management charges (AMC). Vanguard and Blackrock are great names for such passive index funds.

I won't purport to try and advise further because I am quite the amateur. Equities are not very loved nor well-understood, I think, from what I read on mn. l I will say is that my reasonably conservative investment strategy of getting exposure to and staying invested in stocks and shares (without chasing the highest returns or selling on falls) has served me well over the years. My returns are almost as good as returns in the property market, and requires lower capital outlay and ongoing maintenance costs.

Another thing to bear in mind is if you have a private pension (not final salary), you probably already have exposure to the stock market. Check with your pension provider to see what returns you got from your pension (initial cost v. current value) to see whether you can stomach the risk of equities.