Investment ISAs have become increasingly popular in recent years as more people look for ways to grow their wealth. This is across cash and stocks and shares tax wrappers, but experts say the more you can max out an investment ISA, the sooner you could achieve your financial goals.
One way to ensure you are making the most of your investment ISA is by starting early. A parent maximising their child's investment Junior ISA from birth could set their offspring on the path to become an ISA millionaire by the time they reach their 43rd birthday.
Assuming annual investment growth of 7%, she could end up with £1 million in her investment ISA by the time she reaches 43. Of course, this is just an example, and returns are never guaranteed, but it illustrates the power of starting early and maximizing your investment ISA contributions.
But what is an investment ISA, and how does it work? An investment ISA is a tax-efficient way to invest in stocks and shares. It allows you to invest up to £20,000 per tax year, and any returns you make are tax-free. This means you don't pay capital gains tax or income tax on your investment ISA returns.
It's important to note that investment ISAs are not risk-free. The value of your investments can go down as well as up, and you may not get back the full amount you invested. However, over the long term, investing in stocks and shares has historically delivered higher returns than cash savings.
When choosing an investment ISA provider, there are a few things to consider. Firstly, make sure they offer a stocks and shares ISA, also called an investment ISA. Everyone in the UK over the age of 18 is allowed to save up to £20,000 per tax year in an investment ISA.
Secondly, consider the fees charged by the ISA provider. Some providers charge high fees, which can eat into your returns over time. Look for providers that offer low fees and a wide range of investment options.
Investing can also be a powerful tool for inflation-proofing your wealth. With inflation still above 10 per cent, a stocks-and-shares ISA is one way to ensure your money retains its value over time.
It's also worth noting that investment ISAs are not just for the wealthy. Anyone can open an investment ISA with as little as £1, and you can contribute to your ISA throughout the tax year.
If you're new to investing, it's a good idea to seek professional advice before you start. A financial adviser can help you choose the right investments for your goals and risk tolerance.
Overall, an investment ISA can be a powerful tool for growing your wealth over the long term. By starting early, maxing out your contributions, and choosing the right investments, you could set yourself on the path to becoming an ISA millionaire.