Mid-risk stocks and shares ISAs earn £100k> than cash

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  • Investing the maximum allowance in a medium-risk Stocks and Shares ISA since 1999 could have resulted in a total return of 59%, compared to just 13% with the same amount saved in cash. This equates to an additional return of £96k for a stocks and shares investor[i].
  • Despite this, Aegon research shows that a far higher proportion of people hold savings in a Cash ISA (56%) compared to a Stocks and Shares ISA (36%).
  • The majority of those surveyed have only invested small sums into an ISA, with 39% having saved under £20,000 and a low proportion of just 15% having saved over £100,000.
  • People are adopting a ‘DIY’ approach when selecting investments with 66% of ISA investors choosing themselves and just 27% seeking financial advice.

With this year marking the 20th anniversary of the introduction of the ISA, new analysis by Aegon highlights the potential benefits of investing in a Stocks and Shares ISA compared to simply saving in cash.

Research reveals that a significantly higher proportion of those surveyed hold a Cash ISA (56%) compared to a Stocks and Shares ISA (36%). Despite this, analysis shows that investing the maximum ISA allowance into a Stocks and Shares ISA, with a medium risk investment mix aligned to the ABI sector average, every year for the last twenty would have seen a return of 59%, making over £121,000 in profit[ii]. Saving the maximum ISA allowance into a Cash ISA over the same period would have resulted in returns of just 13%, or £26,000 profit[iii].

In addition to an over-reliance on cash, only 16% said they are in a position to max out their annual tax-free allowance of £20,000 before the end of the tax year in April 2019. Over three in five (62%) said they don’t plan to max out their ISA allowance this year, while 18% said that they don’t currently have an ISA.

The figures show that on average most people do not have huge sums saved in ISAs. A low proportion of just 15% have saved over £100,000. The majority of those surveyed, 39%, have saved under £20,000 in ISAs. 17% have saved £20,000 - £50,000, and 18% have saved between £50,000 and £100,000.

When it comes to investing in a Stocks and Shares ISA, a small proportion of 27% said they use a financial adviser to select the investments within their Stocks and Shares ISA, with a high number of 66% saying that they decide for themselves.

Around half make ad hoc investments (48%) while just over a quarter (27%) invest monthly, and 15% invest at the end of the tax year.

Commenting, Nick Dixon, Investment Director at Aegon, said: “The benefits of tax-free growth potential on savings in a Stocks and Shares ISA are clear but many people avoid the perceived risk that comes with investing. With interest rates remaining low, many saving into a Cash ISA are at risk of their money failing to keep pace with the rate of inflation. In the worst case investors fail to select an ISA at all, losing out on the tax relief available, as well as any investment growth potential.

“Adopting a mid-to-long-term approach and having a mixture of different investment types in your portfolio is a wise approach to help manage investment risk. Seeking financial advice, particularly when considering what investments to hold in a Stocks and Shares ISA, is prudent. An adviser will look at all your sources of income and your financial commitments to assess how much disposable income you have to invest and how you can achieve your objectives in the most tax efficient way.”

 

References

[i] Stocks and Shares ISA returns based on investing in the ABI sector average. Cash ISA returns based on investing into a cash account paying interest at the Bank of England Base Rate. Source: Financial Express, produced by Aegon. Figures in £s on a bid-to-bid basis, excluding charges with gross income reinvested from 5 April 1999 to 5 April 2018 and investments at the maximum ISA level over 20 years to from 1999. Past performance is no guide to future performance and investors may get back less than they originally invest.

[ii] Maximum ISA allowance of £206,560.00 invested in total since April 1999, Stocks and Shares ISA value of £328,556 at tax year end 5 April 2019, calculated as described in endnote ii.

[iii] Maximum ISA allowance of £206,560.00 invested in total since April 1999, Cash value of £232,709.35 at tax year end 5 April 2019, calculated as described in endnote ii.

 

Further information

Research was conducted by Aegon with the Aegon UK consumer panel. Total sample size was over 400 adults, weighted to be nationally representative. Fieldwork was undertaken in February 2019.

 

Alex Messis

PR Manager

Aegon UK

alexandra.messis@aegon.co.uk 

Tel: 0131 549 2920

 

Notes to Editors

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to around two million customers and employs more than 3,000 staff. More information: aegon.co.uk
  • As an international life insurance, pensions and asset management company based in The Hague, Aegon has businesses in over twenty markets in the Americas, Europe and Asia. Aegon companies employ over 25,000 people and have millions of customers across the globe. Further information: aegon.com
  • The value of an investment can fall as well as rise and is not guaranteed. Investors may get back less than the amount originally invested
  • Protection policies don’t have any cash-in value. Protection cover will cease if contribution payments are stopped.

Aegon is a brand name of Scottish Equitable plc. Scottish Equitable plc, registered office: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No. 144517). Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 165548. An Aegon company.www.aegon.co.uk                                                                        

© 2019 Aegon UK plc.