Martin Lewis urges ‘far more’ people’ to invest in tax-free shares ISAs

Money guru Martin Lewis has declared that “far more people” should have shares ISAs.

The star used his latest ITV show to encourage people to consider investing their money, rather than having it sat in a savings account.

He singled out stocks and shares Individual Savings Accounts (ISA), which are a tax-free way to invest up to £20,000 per tax year. It means you do not have to pay UK income tax or capital gains tax on money earned from your investments made through it. You can use a stocks and shares ISA to hold a whole bunch of different types of investment, from unit trusts and investment trusts, to individual stocks and shares.

Martin said: “A shares ISA is a tax-free way to invest and far more people should have one than do, even on volatile days like this. For many investing feels risky, scary, something other people do. As a nation we under invest and most are only exposed to the market through their pension. But avoiding risk has a risk too. Inflation can eat away at your savings and you can miss the chance to build wealth.”

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Explaining the basics, he said: “Investing is something where you put your money somewhere in the hope it will grow far quickly than saving. But the risk is it might go in the other direction.”

He also had these golden rules: “Only invest when you won’t need for at least five years. Make sure you’ve cleared any expensive debts first, and you should always have a cash emergency fund, three to six months worth of bills built up.”

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The Moneysavingexpert.com founder highlighted what would have happened by putting £1,000 into different options 10 years ago. Someone who went for even the best paying savings account will have seen their money grow by less than inflation. But £1,000 invested in the FTSE 100 would be worth £2,400 now, while in an index tracking global stock markets it would be £3,600, and finally in the US S&P 500 market it would have grown to £4,110.

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Martin suggested anyone starting out opt for a fund, rather than buy individual stocks. He told viewers of The Martin Lewis Money Show Live: “The starting point is a fund, which is a basket of investments that you buy as one. There are active funds, where a fund manager is paid to pick stocks for you, and they want to outperform the market, or a passive fund, which is like a tracker where it tracks a market like the FTSE 100.” Experts on the show suggested those starting out opt for a passive fund.

A viewer who has always had cash ISAs asked whether, with a shares ISA, there are protections for her money. Martin said: “No, that’s a fundamental difference. Money in a cash ISA, your capital is protected, you get a defined amount of interest. When you put money in shares or funds it’s about the underlying performance of those assets.

“If you are buying an individual share, you could lose all your money. If you are buying a fund, that is unlikely. It may go down, but over time, on a big wide spread, hopefully on the balance of probability it will do better, and it will do better than savings.”