How risky is a Stocks and Shares ISA?

Alexandra | Greater London| 06/09/2017 | 3

  • Stocks and Shares ISA

Alexandra's question in full

How risky is a Stocks and Shares ISA?

Holly Mackay's Response

Let’s face it, people’s biggest fear with the stock market is the risk. No-one likes to think that they could invest all their cash, some banker presses the wrong button, triggers a global financial crisis and they lose the lot.

We would be the first to admit that the stock market bounces around like a 4-year old on a Haribo high, and every now and then it has a big old panic and sells off. However, this can give a misleading impression of the risks involved. Over 10 years, stocks & shares are 91% more likely to do better than cash.* Those odds are not to be sneezed at!

The biggest question to ask yourself is how long you are sticking the money away for. If it’s less than 3 years, it’s a bit hairy to think about shares because they bounce around a lot. In 2008, UK shares went down by about 50%. If you had stuck in £1,000 at the beginning of the year and needed to sell at the end, you’d be sitting on a depressing £700. Nonetheless, in 2009, things rebounded by about 30%. You need to look long-term if you’re going to invest in the stock market.

You can improve your odds by investing monthly. You don’t have to sprint into the market. Say you have £3,000 to invest. You could decide to stick in £500 every month for 6 months. This avoids buying at the wrong time and is the investment equivalent of having a glass of water in between every glass of wine. If you’re going to do this, just check you’re not paying a transaction fee every £500 chunk as this can eat into your savings.

A final thought is this. We all think of shares as risky. But with interest rates at all time lows, leaving your cash in some rubbish account for the next 10 years has the risk of you not making your money work hard enough and you not having enough to do what you need to do. Sometimes, doing nothing can also be risky - food for thought.

Finally, the issue of costs. Paying someone a chunky fee to manage your cash is going to eat into your returns and is usually completely unnecessary for small pots on money to stick into regular savings or an ISA. If you DIY, then a fair value fee is about 1.25%, so £12.50 a year for every £1,000 you save. If you’re paying any more than that, make sure you’re getting something reaaaalllly good.



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Our Expert

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Holly Mackay

Founder and MD of Boring Money, Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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