Why a Stocks & Shares ISA can still make sense in volatile markets

Holly Mackay

We know that many people have been concerned about the impact of volatile markets on investments – what will happen to their money if they carry on investing into an existing Stocks & Shares Individual Savings Account (ISA) or set up a new one? So we asked independent consumer website Boring Money – experts in demystifying the markets who are known for their straight-talking plain English approach – to explain why investing into an ISA in volatile markets can still make sense.

The impact of a world in semi-lockdown has been different for each individual, but there have been some common themes. For some, it’s been a tough year as they’ve lost their job or redundancy beckons. The mental impact on many people can’t be underplayed either. But for some, it’s also been positive for their finances. No trains, parking, petrol, dry cleaning, gym memberships or foreign holidays means lower outgoings and costs. Which potentially means they have some spare money – to save or invest.
Here’s what a couple of people we’ve surveyed during this period have said:
“My personal situation will probably improve as I'm saving money by not having to travel to work and not being able to go to football matches and concerts!” (Male, 45-54)
“My job is safe and my investments (I think/hope) have already suffered the main hit from the Covid outbreak. In fact, money saved from travel and not being able to spend may even see my financial position slightly improve.” (Male, 45-54)

We recognise that confidence in investing isn’t currently very high

We know that many people are struggling with what’s the best option for any spare money they currently have; very low interest rates available for cash savings, and the perceived risk of investing in markets through a product such as a Stocks & Shares ISA.

Our research finds that almost 5 out of every 10 investors would score themselves a 5 or less out of 10 when it comes to measuring how confident they feel about opening a new investment account. Add in coronavirus, Brexit and the US elections to the equation and it’s easy to see why people are feeling nervous about investing.

But investing does still make sense, really…

By definition, investing involves ups and downs. It will always be a bumpier ride than cash. But if you have a spare £50 or even £100 a month, it’s still worth thinking about investing more into any existing Stocks & Shares ISA you have, or setting up a new one, if you don’t already have one. It may not be as hard or as scary as you think. Here are some reasons why.

You’re giving your money the chance to grow in real terms

With interest rates at record lows, if you put your money in a savings account or Cash ISA, you may find that you don’t get a return high enough to beat inflation, effectively eating into the value of your savings in real terms.
Although it’s important to remember that all investments can go down as well as up in value, and you may get back less than you paid in, investing does give your money more potential to grow in value and help avoid the impact of inflation. Find out more about this here.

It can help to ‘average out’ risk

By putting money into a Stocks & Shares ISA little and often (drip-feeding), you’re helping to reduce the risk of getting into markets at the wrong time. Imagine investing all your money one week, only to see a slump the following week. Ouch.

Instead by drip-feeding your money in, the theory goes that sometimes you’ll buy in when it’s cheap, sometimes when it’s expensive. But it will average out over time. So you don’t need to worry so much about short-term movements in markets from one week to the next, as your money will have an opportunity to recover from any short-term losses over the longer term.

Drip-feeding investments is a fairly common approach. You may well already invest into your pension plan this way through monthly contributions. And, according to our research, 26% of Stocks & Shares ISA holders also make regular payments, rising to 40% among those aged 18-44.

Don’t forget the tax benefits

A final thing to be aware of is your annual ISA allowance of £20,000. Investing into an ISA is tax efficient, meaning you won’t pay tax on any profits you make. Less for the tax man and more for you. So you might want to think about using up as much of your allowance as you can before the tax year ends on 5 April 2021.

Want more information or thinking of investing?

You can find out more about Standard Life’s ISAs here, or if you already have a Standard Life ISA, and want to pay more in, you can log in here. To open a new Standard Life ISA, select the link below.



The information in this article should not be regarded as financial advice.
Laws and tax rules may change, and the value of tax benefits depends upon individual circumstances. Please remember that the value of investments can go down as well as up and may be worth less than was paid in. Past performance is not a guide to future performance.
All information is based on Boring Money’s understanding in October 2020.