He was asked if now is a good time to open an ISA or not
Martin Lewis has offered guidance on how best to structure your savings. The consumer advocate shared a practical tip in light of the current uncertainty surrounding the economic impact of the conflict involving Iran.
The ongoing hostilities have already triggered a surge in oil prices, with fears that there could be lasting consequences for food production and global economic growth. Mr Lewis was asked by a fan of his BBC podcast about whether now is a sensible time to open a stocks and shares ISA, given that markets are struggling.
When share prices fall, it can be a wise moment to invest, as your funds could rise in value when the market bounces back. But in contrast, if prices continue to slide, the value of your holdings could diminish further.
In response to the question, Mr Lewis outlined the general principle to bear in mind. He said: “If you’re talking about investing for a long term money that you don’t need for five years and you’re going to do that in a nice spread of investments, like a global tracker fund or an S&P tracker or FTSE tracker, then you just have to accept that you will never know when the perfect time to put money in is.”
£1,000 savings method
Nevertheless, he did share one approach you could consider to reduce the risk posed by market volatility. Mr Lewis said: “Let’s just imagine you’re putting £10,000 in a stocks and shares ISA, and you’re putting it away for a long time.
“You could put £10,000 in now but you could arrange with the provider that it sits in its cash part. You can hold it in cash, within a stocks and shares ISA, for the moment.
“You could say I’ve got £10,000, over the next 10 months, I’d like you to buy £1,000 a month of that tracker fund that I’m putting my investment into. It’s called pound-cost averaging.
“Because you’re drip feeding the money in, that helps smooth out the short-term volatility of buying at the right moment. So if you’re worried about that volatility, you might want to adopt that tactic.”
Mr Lewis told listeners that in reality nobody can predict the best time to invest. He said: “They are unknowable in the short term, but in a broad spread of investment over the long term, on the balance of probabilities, investing will outperform saving.
“So don’t let the volatility put you off, but you might want to spread the time that you’re putting the money in.”
Big changes to ISA allowances
Significant changes to ISA allowances are on the horizon. At present, savers can deposit up to £20,000 each tax year, which can be divided as desired between cash ISAs and stocks and shares ISAs.
From April 2027, savers will only be able to set aside up to £12,000 as they choose. The remaining £8,000 will still be available, but will be restricted solely to investment-based accounts.
Savers aged 65 and over will be exempt from the new rules, and will retain the current £20,000 allowance. ISAs are entirely tax-free, with no HMRC liability on any interest earned or investment gains within these accounts.
