Savings

How a Stocks & Shares ISA can fit into your long-term savings plans

Holly Mackay

Independent consumer website Boring Money – experts in demystifying the markets who are known for their straight-talking plain English approach – look at the role Stocks & Shares Individual Savings Accounts (ISAs) can play in your long-term savings plans.

What are you hoping your financial future will look like? Successfully launching your own business? Buying a home? Retiring comfortably? Or simply being prepared for the unexpected challenges and opportunities life presents you with?

Whatever you see on the horizon, the first step is to fund it. And that’s where Stocks & Shares ISAs can come in. Let’s hear from some people out there investing into a Stocks & Shares ISA about how they’re using theirs to support their long-term plans. Please note that their comments are for information only – they’re not intended to provide advice on how you should manage your long-term savings.

Back-up funds for when rainy days become rainy months

One of the most common reasons for saving or investing in an ISA is to build up some funds for emergencies. But it’s impossible to know what an emergency’s price tag or timescale will be, so it’s a good idea to build up both short- and long-term emergency funds if you can.

If your boiler breaks down or the car packs in, you’ll probably need a relatively small amount of money, but you’ll need it quickly. In situations like this, an easy-access Cash ISA would let you take out your money straightaway without feeling the strain on your regular income. A general rule of thumb is to keep around three to six months’ savings in a Cash ISA for short-term emergencies.

On the other hand, if you want to build up a larger pot of money for unexpected future expenses and are prepared not to dip into your money for at least five years, a Stocks & Shares ISA could make more sense. Without the need for speedy access, you can instead prioritise growth, although you need to remember that investments can go down as well as up in value, and you could get back less than you paid in. And, although it’s generally considered a good idea to invest over longer periods of time, with most Stocks & Shares ISAs you can still access your money if you need it at any time.

“I have an ISA I started investing in having spoken to a colleague about investing. I wanted one to get a better return on my money and to save for a rainy day. I also have a pension I save for retirement in.” (Investor, 45-54)1

Tax-free savings for special plans

A Stocks & Shares ISA doesn’t only need to be for emergencies – some people have theirs as pots of spare money to use for pleasure. They add to the savings over the years, regularly or whenever they have extra income, and withdraw enough for a holiday here, a new car there, when markets are doing well and their investments have grown in value.

The important distinction is that this money is for wants not needs, which avoids any danger of being forced to sell investments when markets are falling.

“I have an ISA with my investment provider. I use this for ‘play money’ – it’s money that is ours that we can use but it’s not tied up in a pension.” (Investor, 45-54)1

Extra (or early) retirement income

Most people will have at least one pension, and this is what tends to spring to mind when people think of how they’re going to fund their retirement. But these days, they’re only part of the picture - teaming up your pension savings with a Stocks & Shares ISA may give you more options.

Some people delay drawing on their pension savings to give them more time to grow in value. Instead, they use money they’ve invested over the long term in a Stocks & Shares ISA to supplement their income, for example if they want to reduce their working hours before fully retiring. Other people choose to retire early, before they’re entitled to draw on their pension savings (currently age 55), and so use their ISA savings which have no such limits, and benefit from tax-free withdrawals. As you can see, having an ISA alongside your pension can unlock a lot more flexibility.

“When [my] Investment Account is exhausted I plan to start taking dividends from my ISA investments unless I need more income, in which case I will sell ISA investments. Finally, when and if that all goes, I will resort to equity release. So my SIPP [self-invested personal pension] will be the last thing to go, as my intention is to leave my SIPP to my children/grandchildren.” (Investor, 73)2

Please be aware that tax and legislation may change and your own individual circumstances, including where you live in the UK, will have an impact on your tax treatment.

A way to make a difference

Money makes the world go round, and where you put yours can make a difference. If you’re looking to have a positive impact on the world, choosing responsible investments for your Stocks & Shares ISA is a way to do this, while still giving your money the opportunity to grow in value. For many people this has become a hobby – especially in retirement.

"In my early 50s and gearing up to retire, I know I need to do other things with the other half of my life. So I’ve been thinking about the environment, or making sure people are well fed and cared for around the country, or in developing countries. We have quite a lot of our investments in developing countries. I’m quite anxious to find good investments, like providing water to villages, where there’s a way of getting a decent return. Then everybody feels great about it." (Investor, 53)3

Want more information or thinking of investing?

If you already have a Standard Life Stocks & Shares ISA, and want to make the most of your £20,000 yearly allowance, log in here to pay more in. Or if you’re considering responsible investments for your ISA, find out more about your options. 

To open a new Standard Life Stocks & Shares ISA, select the link below.

 Open an ISA

 

1 From Boring Money’s Online Investing Report 2019

2 Published response to a callout in Boring Money’s Holly’s Blog in September 2019, asking for readers to share their experiences in drawdown

3 From telephone interviews for the 2019 Sustainable Savers tribe project

The information in this article should not be regarded as financial advice.

All information is based on our understanding in December 2020.