Investing in Stocks & Shares ISAs

Back in 2021, when Britain was under its third major Covid-19 lockdown, I opened some Stocks and Shares ISA accounts:

  • A standard Stocks & Shares ISA with Wealthify (backed by Aviva)
  • A Lifetime Stocks & Shares ISA with Nutmeg (backed by JP Morgan Chase)
  • A Junior Stocks & Shares ISA, also with Nutmeg

A Stocks & Shares ISA is a type of investment account, which means that the money that you put into the account is invested in company shares, government bonds, and other investments. An ISA (Individual Savings Account) just means that you don’t pay income tax on any returns, but you’re also limited to how much you can pay in.

I decided to dip my toes in investing because, at the time, the Bank of England base rate was historically low, meaning that most regular saving accounts paid minimal interest. Meanwhile, investment accounts seem to offer much better returns, and I had inherited money from my grandfather which wasn’t earning much interest.

A warning about investing

Putting money in investments, rather than cash savings account, always comes with a warning, and for good reason. The value of any money that you invest can go down as well as up, and you can lose all of your money. You should never invest money that you cannot afford to lose.

Both the accounts I opened are covered by the Financial Services Compensation Scheme (FSCS), which means that your money is safe if the provider goes bust. But this doesn’t protect you from investment losses.

None of what I write here should be considered financial advice, and investing may not be right for you.

Lifetime ISA

One of the accounts I have with Nutmeg is a Lifetime ISA. You can only open such an account if you live in the UK and are aged 18-39 (inclusive), and can only pay into the account between the ages of 18-49. There are also strict limits on when you can withdraw the money; you’ll pay a 25% penalty on any withdrawals unless:

  • You are buying a house for the first time and want to use the money for a deposit
  • You are aged over 60
  • You are terminally ill with less than 12 months to live

However, the government will top up any contributions paid in before you turn 50 by 25%. So my initial investment of £500 was topped up to £625, and you earn interest on the whole amount.

We already own a house, so I’m using it as an additional retirement fund, alongside my state and employer pensions.

Junior ISA

I also set up a small Junior ISA for our eight-year-old, which I manage for them. Most of the money in there is from cash gifts from birthdays. Once our child reaches 16, they’ll be able to take over the account management, and can withdraw the money at age 18.

Investment performance

The accounts have varied in their performance. Both Nutmeg accounts have had a positive return; 10% in the case of my Lifetime ISA (and that’s on top of the 25% government contribution). However, there have been times where the value of my investments has been less than my contributions – the start of the war in Ukraine, for example. It’s only really been in the last 6 months that I have had a consistently positive return, and there’s been a wobble in recent weeks.

The Junior ISA, opened later, has a lower positive return of around 6%.

My Wealthify ISA hasn’t performed so well. Overall, it’s worth less than my contributions. Some of that money comes from a sign-up bonus, which means that I am still ahead overall. However, since interest rates have gone up, this money may have performed better in a good cash savings account instead.

It’s also worth noting that a small amount will be deducted from the value of your investments as a ‘management fee’, to cover the costs involved of buying and selling your investments.

Appetite for risk

Both Nutmeg and Wealthify include questionnaires when you open the accounts. These ask you about your appetite for risk, and how you intend to use the money. They will then suggest an investment style – lower risk, but lower potential returns, or high risk, with higher potential returns but a greater chance that you’ll lose money.

Both my Nutmeg accounts are at the highest risk setting. This is because the money is there for the long term – I can’t access my Lifetime ISA penalty-free for another 20 years. My Wealthify ISA, which I can access more easily, is at a middle-of-the-road risk level that they call ‘Confident’.

All of these ISAs are ‘ethical’, which means that the money shouldn’t be invested in companies who work in the oil and gas industries, arms manufacturing or tobacco.

Referral links

If you want to try Wealthify or Nutmeg yourselves, here are my referral links:

But please, don’t take excessive risks. Cash savings accounts offer much better interest rates than they did three years ago, and as long as the provider is part of the FSCS, you don’t risk losing your money. I suggest that you only consider investing for the long term, and for money that you can afford to lose if things go wrong.

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