Five ways to boost your stocks and shares ISA

Investing in a tax-efficient stocks and shares ISA can be one of the best ways to make your money grow over the long term, but many of us find it difficult to know how to boost our savings in difficult times.

It’s easy to feel downhearted when your stocks and shares ISA falls in value, even if you know this is down to forces beyond your control in the global economy. You may worry about the potential of your ISA to recover and rise in value again, particularly if you’re likely to need your investment in the next few years. You can find out more about how to cope with market volatilty in our guide What should I do if my stocks and shares ISA falls in value?

Here, we look at five ways you might be able to boost your stocks and shares ISA, to give your investments the best chance of growing in value over time.

Contents

• Use as much of your ISA allowance as you can
• Keep things simple
• Stop checking performance
• Consider reinvesting your dividends
• Don’t try to time the market

1. Use as much of your ISA allowance as you can

If you can afford to, it’s worth making use of your ISA allowance each year to increase your chances of building a substantial savings pot. An ISA enables you to invest as tax-efficiently as possible. You don’t have to worry about capital gains tax or income tax on your investment returns, and you don’t need to declare ISA investments on your tax return, making these accounts a simple way to build an investment pot. 

You can contribute up to £20,000 in the current 2023/24 tax year, which ends on 5 April. You’ll get a new ISA allowance at the beginning of the new tax year starting on 6 April, and you don’t need to max it out each year. However, remember that this is a ‘use it or lose it’ allowance, and any unused allowance cannot be carried over into the next tax year, so if you don’t use it one tax year, it’ll be gone for good. Read more in our article Everything you need to know about ISAs.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Consistency is one of the most powerful tools in an investor’s armoury, and making sure you take advantage of your ISA allowance each year makes an enormous difference to your finances. 

“If you had invested your full allowance every year since they were launched in 1999, and put your money into a global tracker fund, for example, you could be sitting on a nest egg of just over £738,700 today (having invested around £286,500). Of course, not everyone has the cash available for this sort of commitment, but simply investing whatever makes sense for your finances and committing to ISAs each year will help you make the most of every penny.”

2. Keep things simple

It can be tempting to put your money into the latest investment trend. This may be, for example, a particular technology company that promises to revolutionise our future, or a fund that’s tipped by experts as the next ‘big thing’. However, be wary of following the herd when it comes to investing. It’s notoriously difficult to pick stock market winners, and companies that are in favour one day may suffer a major setback the next. It’s vital to make sure you never invest in anything you don’t understand.

It’s a good idea to ensure that you’ve got a spread of investments, as focusing on one particular type of investment or company can lead to an unbalanced portfolio. One of the simplest ways to reduce risk is to invest in a multi-asset fund that holds lots of different companies and assets, so that if one of these runs into difficulties, the impact on your portfolio’s value won’t be too dramatic. This approach may also help you to avoid chopping and changing your investments in reaction to market movements. Find more information in our Beginner’s guide to investing section.

3. Stop checking performance

During periods of uncertainty it can be tempting to regularly check the performance of your stocks and shares ISA. However, this is only likely to make you more anxious than necessary, and could prompt you to make poor investment decisions. For example, you may be tempted to cash in your investments if they’ve fallen in value, particularly when your finances are under pressure in day-to-day life. However, if you sell your investments, you’ll only turn paper losses into real ones. 

Unless you really need the money in the short-term, so you need to sell your investments imminently, it’s generally counterproductive to regularly check performance. As a general rule, you should ideally only check your ISA performance maybe once or twice a year, and remind yourself why you invested in the first place when you do. This could help to reduce any anxiety around what may hopefully only be temporary losses. Read our article 9 ways to develop a positive money mindset to help you focus on positives.

4. Consider reinvesting your dividends

If your investments pay dividends, these payments can make a big difference to the size of your stocks and shares ISA over time if reinvested. Dividends are essentially a slice of profits paid out to company shareholders, and unless you really need the additional income, it’s important that they are reinvested. They can significantly boost returns during difficult times, easing the impact of stock market volatility on your investments.

The FTSE 100 has risen by 94% over the last twenty years, but investors who had reinvested dividends would have made a return of 307%. In other words, each £1,000 invested would now be worth £4,070, according to figures from Financial Express.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Dividends are one of the big components of stock market returns, and if you don’t need an income right now, you can roll them up for future growth. The FTSE 100 is forecast to provide a dividend yield of 3.8% in the coming year, and while dividends can be cut, over time they tend to rise, providing some valuable protection against inflation.

5. Don’t try to time the market

Plenty of stock market commentators have opinions on when the market will take another tumble, or benefit from a bull run. However, no-one can know for certain which way the market will move next. The most important thing is that you put your money to work in the market if you’ve got a long enough time horizon, which is usually at least five years but ideally, much longer. Equally, knowing when to sell an investment can be very difficult, as no-one can accurately predict if the market will rise or fall further. 

One of the basic principles of investing is to put your money to work as soon as possible, and leave it invested. Your investments need time to grow, and the longer they have to do so, the greater the potential gains. You can drip feed money into your stocks and shares ISA on a monthly basis, so you don’t need to invest a lump sum all in one go. This way, you buy more shares when their price is low, and fewer when they rise in value. This can help to smooth out stock market volatility, and avoid any market timing issues. 

Remember that investing is for the long term. There will inevitably be some peaks and troughs in performance along the way, and the most important thing is to be patient.

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