The world’s stock markets are in the grip of coronavirus panic, and the FTSE 100 crashed below 6,000 points on Monday morning. Is that any time to be thinking about our 2020 Stocks and Shares ISAs? Well yes, I think short-term market panics can help us focus on what really matters — our long-term investing plans.
But shares? In the grip of a stock market crash, you might think a Stocks and Shares ISA is something to run away from. A safer Cash ISA, surely, is a better bet? But I think that’s dead wrong, and I’ll explain why.
ISA limits
But first, I reckon our investment plans are best served by making the best use we can every year of our ISA limit. At the moment, that limit stands at £20,000 per year — we can invest up to that much and not pay any tax on any of the profits we make. For the 2019-20 year, we have less than a month to use what we can of it.
You might not be able to afford to invest anything close to that amount, so you don’t need to worry and can carry on with your 2020-21 allowance. But even if you don’t come close to the limit, I think maximising the amount we invest before the annual deadline can have one very beneficial effect. It commits whatever cash we have available leading up to April, and doesn’t leave it lying round heading into the summer with all the temptations that brings.
Stocks and Shares ISA
Cash ISA rates are around 1.3% at the moment, and that’s if you pick from among the best payers. That’s below inflation, and guarantees you’ll lose money in real terms. So the question of whether a Cash ISA is a good alternative to a Stocks and Shares ISA doesn’t even arise — a Cash ISA isn’t even a good alternative to no ISA at all.
But if you’d piled your money into a Stocks and Shares ISA at the start of the year, you’d be down 20%. So how on earth is that a good move? Well, a this type of ISA is a long-term investment, so let’s look back a bit further.
If you’d invested in one in the depths of the banking crisis slump, around the beginning of 2009, you’d have almost doubled your money today. Actually, when you add 4% and more per year from dividends, you’d have more than doubled it, tax-free. And that’s even after the coronavirus panic sell-off.
Lessons from shares
History is easily forgotten when markets are in the grip of the latest panic. But the real lesson is that times like this are times to buy, not times to sell.
I’ve no idea what will happen in the coming few months. But I am confident that if you keep trickling your savings into a Stocks and Shares ISA and buying shares throughout the downturn, you’ll come out of it in a much better long-term financial state.
And even if you’re nervous of buying shares right now, there’s no rush. If you get as much cash as you can into your ISA by the deadline, you can then take your time deciding what to buy.
