5 common mistakes to avoid with a Stocks & Shares ISA

Edward Willday

2 mins

Individual Savings Accounts (ISAs) are a great option for boosting your financial health through investments. Unlike other forms of investment, interest and growth earned from an ISA are free from income tax and Capital Gains Tax. So, Stocks and Shares ISAs can be a great, tax-efficient way of investing. However it’s important to avoid making mistakes that could diminish its effectiveness. In this article we’ll spotlight five common mistakes you should avoid, and why.

Not fully using your allowance

Each financial year, you are able to invest up to £20,000 across your ISAs, with any growth achieved being tax-free. Your allowance will re-set at the beginning of each new tax year. Any allowance from the previous year that you don’t use is lost – you can’t carry over unused allowances like you can with pensions. So, to achieve the highest returns possible in the most tax-efficient way, you should use the full £20,000 allowance every tax year. You’ll then benefit from as much tax-free growth as possible from your portfolio of investments. It is possible to invest in more than one ISA each financial year, as long as your combined contributions do not exceed the £20,000 allowance. You could have a different ISA aligned to each of your different saving goals.

Six piles of illustrated gold coins of differing heights

Not having a diversified portfolio of investments

While a Cash ISA is a tax-free savings account, a Stocks and Shares ISA invests your money into funds, which in turn hold assets such as bonds, company shares, and stocks. These investments can go up or down, so, investing all your funds in one place can be very risky. A better strategy is to invest in a range of bonds, company shares and stocks. This way, if one investment underperforms, the impact could be reduced by the growth of another.

Not reviewing your ISA investments

It is essential that you monitor your ISA investment performance to ensure they still align with your investment goals. Your risk tolerance may change over time too, and your ISA investments should reflect this.

It can also be wise to review the impact of global issues on your ISA investments. For example when President Trump introduced tariffs on items imported to the US earlier in the year, it had a significant impact on global markets. This may have had an effect on your own investments. In these instances it can be helpful to have experts on-hand, such as our team at Willday Wealth Management. We’ll help you determine if mitigating action needs to be taken to avoid negative consequences.

A man sat at a laptop on a desk. He has a phone in his hand. Both laptop and phone have stocks and shares graphs on them

Being too cautious

When making investment decisions, risk tolerance is an important factor. There is an inherent risk attached to Stocks and Shares ISAs*. With the risk can come high rewards, but the reality is that markets go down as well as up. But, ISAs are long-term investments, and with wise fund choices, the ups and downs should smooth out. By being too cautious, you could be missing out on higher returns.

Withdrawing money from your ISA

It is possible to withdraw money from your Stocks and Shares ISA whenever you wish. However, where possible, ISAs should be viewed as a long-term investment, as they will yield better returns over a longer time period.

The growth generated by your investment earns additional returns alongside your invested funds. This is called compound interest – you’ll earn additional interest on the growth within your fund. Where possible, you should have savings outside your ISA that can be used for emergencies, for example your boiler breaking. You’ll then not need to withdraw money from your ISA to deal with the emergency. This is called an emergency fund and is typically 3-6 months’ worth of expenses.

Illustration of three piles of gold coins increasing in height from left to right. Above, a green arrow tracks an up-and-down trend, generally upwards

How can Willday Wealth Management help you?

Investments such as Stocks and Shares ISAs can be confusing things, leading to mistakes being made. Working with experts, like the team at Willday Wealth Management, takes the confusion out of it, minimising your risk of making these mistakes. We’ll recommend a portfolio based on your goals and personal circumstances, and we will manage them on your behalf. We can even help you explore different portfolio options.

Call us on 0116 222 0119 to book an initial meeting to discuss your ISA investment goals.

* With investing, your capital is at risk and you may get less than what you invested. Tax treatment depends on your individual circumstances and may change in the future.