Stocks & shares ISA for £20,000 investment but not for longer than 3 years?

[LindorDoubleChoc]

I'm just asking really if a stocks & shares ISA is only really suitable for long term investment? And does anyone know how they perform generally vs. cash ISAs?

Because I wouldn't want to manage my own investment, I see I'd need to pay a fee to a company like AJ Bell or similar. How does that fee impact any growth the ISA might make?

Be really grateful for any basic, basic advice! Money Saving Expert say this is not their area of expertise!

Thanks in advance.

ISA is just a label for the tax free wrapper.

I think general advice is that less than five years can carry a risk of low returns or loss.

The various funds you invest in may also have their own fees. As well as the platform fee like AJ Bell. Index funds that track the market like those offered by Vanguard are cheaper than other funds. I'm not a financial advisor, just an individual investor.

It's risky because if the market is down when you need the money you could get back less than you put in, especially in current times with everything so volatile, wars, Trump etc.

The longer the money is invested the more likely that it will have outperformed cash but ideally you always need to be thinking ahead so you can delay withdrawing money if the market is down.

I know that Vanguard give figures for how their funds have performed over the last 5 years, which will be something like +5%, +15%, -2%, +18%, -9%, which is why you really need to be in for a longer term than 3 years because no-one knows what will happen I the next 3 years only that history tells us that investments outperform cash over the long term, even taking into account bad times like COVID, Trump nonsense etc.

But with cash if you get the best paying account, you have guaranteed annual interest of around 4-5%, which isn't too bad really.

If you did invest and the market didn't perform well, what would be the knock on effect? Do you have alternative funds you can use, could you delay using the money or is the 3 year timescale an absolute requirement?

Investing for 3 years is a gamble. Obviously depends what you are invested in and what your objectives are. If it's in stocks and shares then its risky but the returns could be good. If you go lower risk then the potential returns are going to be lower too. You could be up 30% you could be down 30%.

I personally wouldn't advise investing over such a short timeframe unless you are willing to lose some of your money if you need it in 3 years time.

For that much money I certainly wouldn't be paying anyone anything extra to manage it. It isn't needed.

For me if I needed the money in 3 years I'd likely be in cash

You don’t need to pay large fees (e.g. look at trading 212 and iWeb), and the risk is low if you invest in a fund that covers the whole market. My stocks and shares isa has grown 20% in the last 3 months. While obviously it won’t continue at that rate and I don’t want it to, it was recovering from a dip caused by Trump’s tariffs. Volatility like that happens, but over a few years it is far more likely to be up than down - not guaranteed, but likely. I personally regret having used a cash ISA for so long and not being a bit braver, I’ve made more returns in two years of S&S isa than several years of cash despite the ups and downs in the market. You could watch the latest Rebel Finance episodes on YouTube if you want a good explainer of how best to invest in a S&S ISA.

Money market funds are a possible option within a S&S ISA. They offer a slightly higher rate than cash savings, but lower risk and typically more stable than stocks and shares investments. They invest in short term bonds and other debt instruments and aim to provide a steady return (currently just over 5% after fees).

Choosing a low cost platform such as InvestEngine or Trading212 would minimise any impact of fees. It's easy to just park your investment there and leave it to grow until required.

https://blog.investengine.com/why-you-should-consider-money-market-fund-etfs-2/

Stocks and shares should be considered long term investments largely because you need time to ride out the ups and downs of the market.

If you invested £10k today and then the market has a dip your investments could be worth £8k next week. If you need that £10k then you're in trouble.

Over time the markets have historically grown by 5+% a year on average, but there have been dips and you don;t want to be stuck trying to cash out at this point.

If you need the money within the next couple of years then a Cash ISA or Premium Bonds might be a better option.

If you don't think you will need to cash out for at least 5 years then stocks or property or other investments may be worth a look.

If you do want to invest in stocks and shares then there are various apps that will let you do it wirthout any major fees - Trading 212, Robinhood, Freetrade, etc. Each has their own positives and negatives, but can be great platforms.

Well if you had invested in a stocks and shares ISA in 2001 and wanted your money in 2009, it would have been worth less. This is why stocks and shares investments are only for a long term investment and should never be money that you can’t do without.
We have substantial S&S ISAs but have them for decades. They have been good long term investments but the stock market could crash tomorrow and we know that. Our investment company will not take on clients who have not paid off their mortgage.

Our investment company will not take on clients who have not paid off their mortgage

Most people don't need an 'investment company' anyway because until you have a substantial 6 figure sum to invest they don't add any value but requiring clients to be mortgage free is nonsense.

There's a lot of people who's mortgages have been virtually interest free for the last 15 years so makes no sense to overpay as it would have lost many thousands compared with investment growth in a typical index tracker.

If I were you I'd be questioning their competence.

I’ve thought long and hard about this as someone nearing 60 but only having had any substantial savings (inheritance) in the last few years. Although we might not need to touch the money for 10+ years, anything can happen, so we’re sticking with cash ISAs but switching providers when necessary to achieve the best interest rates.

Edited to clarify I meant cash ISA, not cash under the mattress!

They are more long term, if you are going to want the money in the next three years for say example a new kitchen, a cash isa is better

I am sure the company would be open to your bike explanation for not paying a mortgage off.
They just are being responsible and making sure that people are investing money they can afford to loose.
An index tracker would have been terrible if you did as relation did when she sold her house and put all her money into stocks and shares immediately before Black Monday in 1987. Yes the markets did recover but it took a while.