S1E4: How to invest in the UK with a stocks & shares ISA

0:28Right then, T, time to record the Money Week advert. it summarises the biggest news stories that you need to know about, from pensions to investing, tax to the budget, or even what to do with the£1 coins while you're sat on the toilet. Along with their own analysis, they pulled together pieces from the top publications, like the FT, Economist and Wall Street Journal, to give you a balanced look at what's going on. If you want to give Money Week a try, you can get six issues in print and on the app for free by visiting moneyweek.com forward slash money. After your trial, you'll save an extra£5 on a quarterly subscription, exclusive to Making Money listeners, So that's moneyweek.com forward slash M-O-N-E-Y.

1:02There's a link in the description. The government's giving you essentially free cash. Growing your wealth is not just about getting your money to work for you. It's also about keeping as much of it as possible. By now, you'll have got to know T a little bit. That's kind of when I first learned about budgeting. And then when I started getting paid, I took none of that on board. As you can tell, he's not that clued up on basic personal finance. So we've brought in your money.com editor, formerly of money saving expert Paloma Kubiak, to explain the first place you should be thinking about putting your money to work in the UK.

1:37ICAs. They're vital, but not as simple as you might think. Go and make yourself a cup of tea because there's a lot to take in. I've been trying to convince him to get an ICA for the whole time I've known you. He's recently had a baby as well. I'm going to set him up a junior ICA. I've probably just given you one there that you didn't know already. My aim today, if we can, is to really, through this conversation, convince him of why he should be using them. Because one of the things is he's quite bullish on crypto, which, you know, there's absolutely no tax wrapper or protection there. So show me Buzzer T, come on.

2:13Go on. This is my, I don't know what's going on, Buzzer. So if there's any... He's going to be hitting that. I would be smashing that whenever we're talking about anything technical and I get lost, I'm just going to hit the Buzzer. Yeah, yeah. We're going to start by putting you on the spot, T, just straight up. So the conversation is about ISAs today, and I want you to tell me how many different types of ISAs are there. Name them. Junior ISA. Yeah, I just gave you that one. I know. Stocks and shares ISA. Yeah. Cash ISA. Yeah. That's about it. Yeah, okay. They're the most important ones, right?

2:44I would, I mean, yeah, it's subjective important, but I would say they're the most well-used. You've got the innovative finance ISA as well, which is probably not used at all. you said do you know are there any others that we've missed there is lifetime lifetime isa of course yeah help to buy isa yeah and there's also something um it's called a well i suppose it's flexible isa and portfolio isa so yeah it's quite quite a few different isas i suppose with all those different types it can be really confusing and i think a lot of people when they first come at this topic they see all of that and they're like no so could you kind of give us a one-liner of what is an ISA?

3:18Yeah, so an ISA is an individual savings account and it's basically an account where all the money that you put in and anything that you earn in interest or growth in investing is completely tax-free. So the taxman can't get his hands on any of the money that you make that's within these ISAs. One way that I always describe it to people on my channel is like if you go for a run, you could run without a shoe on but your foot wouldn't be very well protected. So the ISA is kind of the wrapper around your foot. It would never move forward by itself. It's like the shoe that protects you as you move forward, essentially.

3:54Yeah, that's how we say it as well. It's almost like a protective tax wrapper on your savings. So, you know, it's tax-free year after year. You get an annual allowance or£20 ,000 in the current tax year. Children, it's£9 ,000. So, yeah, it's a really good vehicle for saving tax-free year after year. Yeah, and I don't think that people realize that tax is probably the biggest impact on how much you'll have at the end. Or if you don't protect from tax, it would be anyway. So just to be clear, the ISA isn't an investment. It's just an account that holds your money. So it helps your investment. Yeah, it protects them from tax.

4:31So it's just a wrapper. In the same way, a bank account, you put money in it. An ISA, you put funds, investments, et cetera, into them. Tomein touched on a few of the different types there. the ones I want to focus on initially probably cash ICAs and stocks and shares ICAs and then we'll look at the lifetime ICA and stuff as well as they're probably I looked at the data I think 50 % of all funds goes into cash ICAs still 20 to 30 % into stocks and shares what are the differences between those two broadly would you say so cash ICAs they're probably the simplest form of ICA so you put your money into bank or building society or credit union and you can choose between fixed or variable rates.

5:11So you might want to put money away that you can access easily, or you might want to put your money into a notice account. So say you give your provider 30 or 60 days to access your cash, or you can even put your money in a fixed term. So anything from one year to five years, if you're trying to get a bit more interest on your money. So cash, you can actually open account. So for children, for yourself. And then when we come to stocks and shares ISA, that is investing. So there is risk when it comes to investing and money can go up as well as down. But for investors, the hope is that they will beat the returns on cash.

5:51So the Investment Association, they have actually thought they say that there are 4000 UK funds that you can invest in. And then there are also 378 companies that you can invest in as well. So it's a massive universe. You can invest by region. So you might want to invest in the UK or Europe or even emerging markets like China or India. You can invest by sector, so technology and healthcare. So, you know, massive areas, different regions, everything that you can invest in. But one of the things is, you know, you need to be comfortable with the risk that you're taking with your of investing. So really they're like different tools for different jobs.

6:29Yeah I'd say so yeah yeah so with with cash ices you might want to have access to your cash within a certain amount of time you might want to you know have a goal at the end of the year whereas with investing it's more for the long term so you might think about whether it's for your children's I don't know university or to give them a nice pot on their 18th birthday or essentially for yourself to have a nice retirement pot at the end of it as well. Yeah and like one thing I've seen is that The journey is people might, they have a cash ISA to save up for a short-term goal. They invest through a stocks and shares ISA.

7:01And then as they approach the end, they might look to move some of that back into, say, a cash ISA to live off or to protect them from short-term declines in the stock market or whatever. Just to be clear as well, with a cash ISA, you're going to get a promised fixed interest rate. Especially recently, the rates on cash ISAs have gone up. So a lot of people now see them as more attractive. I think you can get, is it upwards of five? you get 5%, 4.5%, 5%. Yeah, nearly 5%. But yeah, they've started to come down a little bit recently. But when you think about a couple of years ago, you were getting 1 % if that on your cash.

7:35Now it's closer to 4 % on a one-year bond. So it's really improved over the last couple of years. Whereas the stock market, the long-term average over 100 years is anywhere between 9 % and 12%, depending on kind of where in the world you're looking. So even though the cash ISO rates are attractive, you would hope over the long run that the stock market would outperform, the equity risk premium. Yeah, definitely. Cash ice is sort of the safer, the simple option. But with investing, you are hoping for that growth, for that long-term growth. So Tilney, they came out with their data. So suggesting that the MSCI UK index, the S &P 500 and then the MSCI worldwide.

8:15In the last 50 years, 37 of those years, there've been positive returns. Yeah. So the positive returns are sort of three quarters of that time. You know, when you think about the compounding effect, then that's when you hope that your money will grow over a longer time period. These are calculations from Vanguard. And if we look at this, so over a 50-year time horizon, that's a long time. But if you put away£200 every month and based on 5 % growth after fees, then you could expect to have around£500 ,000 in your ISA, your investment ISA. But if we're talking about more modest sums, so say over a 10-year period, you put away£50 a month, say that's manageable for you.

9:01Then again, after 5 % growth after fees, then you'd be looking at around 7 ,700. So I think it really varies on exactly where you're investing, how much growth potential there is. But, you know, over a longer term, because of compounding, you would expect that pot of money to grow, you know. Sorry about that. to tell me about compounding. Before we do, I just want to say, I've been telling you to put money in an ISA for 10 years. And you've been telling me about compounding as well. Yeah, 7K, half a million K. But it seems so long term, like saving for 50 years. I might not even be here in 50 years.

9:37Realistically, I probably won't. So the 10-year one sounds a bit more realistic. The stats would definitely will be here. Really? Yeah. How long are we living for? I mean, I think they think one 10 % chance of living to 100, I think I heard the other day. But I mean, average life expectancies are definitely going up. let's just put it this way stats say you're more likely to be here than not you know but you hit the buzzer so compounding that's just when you put more money in it grows quicker so compounding is interest on your interest so if you put money into a product um you're earning interest and then that amount of money which gains the interest then it's rolling up all the time so it's interest on interest i think the thing that highlights compounding and like its power is that the chessboard and the wheat thing.

10:22Have you ever seen that? It's like a story where there was an emperor Chinese said, okay, I'm going to pay you for the fact that you've helped us win this war. And the man just said, all I want is a piece of wheat on a chessboard and just double it every single time for every square on the chessboard. And the emperor's like, this guy's, we're going to rip him off here because that's pretty simple. So on the first piece, there was one piece of wheat the second there was two the total amount of wheat on the chessboard i'm going to need to read this number out because of compounding it doubles every time it was 18 quintillion 446 quadrillion 744 trillion so you get the picture it was a lot of wheat so essentially the doubling effect over that period of time even on something that seems quite small that compounding effect can mean that the the end result is massive i'm not saying that people are going to be quintillionaires but i don't even know how many figures that is you should see the number i've only been able to read it with such conviction because it's written down but i think for me like the most common thing that i get and i feel this myself is people like i always just wish i'd started sooner but i think the clear message is there's no sooner than like today and get started and i don't want people that listening to think oh i'm 40 i've i've missed out on all of that growth but you know with compounding and the benefit as you said I saw something about if you're if you start at 20 and you pay 250 a month in if you start at 30 you're going to need to pay nearly double that in to to match the growth that that 20 year old will see over that period through the same level of investment yeah I think some of the headlines are some of the statistics that we find they can be quite scary saying you know by the time you're 30 or 40 you put half your income into your pension and I think that probably doesn't add to the appeal of pensions and I think you know for everyone you'll have different goals in life you know you might be saving for a property now we've got the cost of living crisis you might be thinking well I need to pay my bills I need to cover food costs travel everything but it's just thinking about it just from almost like a mosaic so start off with that little piece see what you can contribute and you know hopefully even the little bits will add to what you can actually gain later on yeah so with my investing journey when I first started I was not in a good place financially and I was probably only saving 20 to 50 pounds a month but it's that money that's earned the most because of the time component so it's certainly not worth going I can only afford 20 pounds is it like you know this is really accessible for anyone at kind of any budget really yeah yeah I'd say so just try and think about how much you can actually put away.

13:01And, you know, over time, even that£20 that you put in 20 years ago, hopefully that will, that would have grown by now. And, you know, that it helps with your journey for, you know, secure financial future. So where do people go to get an ISA? I know it sounds like stupid, but it's, it sounds a good question. It's how you get, you know, you can get a bank account at a bank and people understand that, but where do you get a stocks Stocks and shares, ISA, where would I even go? Okay, so with stocks and shares, ISA, you can head to an investment platform. So if I can name some names, so you've got the big ones like Hargoos Lansdowne, AJ Bell, Interactive Investor.

13:38You can also go to a ISA manager or an IFA or a financial advisor. And then you've got these sort of digital wealth managers. So you've got like, they're robo advisors. So on your phone, you can get an app. So a few different routes. But do these robo-advisors and financial advisors, do they take a fee? So fees are really important to look at because fees are almost sort of the one thing that you can control when it comes to investing. You can't control the way the stock market's going. Obviously, you can pick which funds and shares and bonds you want to invest in. But when it comes to fees, it's really important because some platforms might charge a percentage fee, which is particularly good for those people who have slightly less to put away into their investments, whereas some charge a flat fee.

14:27So if you've got more money, then the flat fee structure is better for you. But say if you've got one platform who charges, say, 0.5 and another that charges 1%, then obviously that's quite a big difference. Look at ongoing charges. you want to look at one-off charges as well like trading charges and also exit penalties if you want to take your money out then just just being aware of all the fees that could potentially eat into your into your money yeah i think like the problem is that the fees addressed in a way that people are like i'm not used to this kind of fee but actually it's just a fee for the account there's fees for the things that you put inside and then there's there's might be fees every time you buy and sell i think the thing is that people need to understand that the difference between a 1 % or 2 % fee and a 5 % fee is potentially hundreds of thousands of pounds over the course of holding a product for years.

15:21So it is, as you say, it's the one variable that you can control. I think people are going to go, okay, I can get them from these managers. You could literally Google stocks and shares ISO or cash ISO or whatever, and it'll come up with the best providers. How much money should people be putting away? I know that's a hard question to answer, especially at the minute but do you have any thoughts on that? I would say that is quite subjective so everyone's got different incomings outgoings priorities and I think it's looking through your your budget go for your direct debits see how much money you could potentially put away but the one thing we say is you know try and have at least three to six months of your salary put away into an easy access account you know if your car breaks down your boiler breaks down then at you've got some emergency cash to fall back on before you go down the investing route or putting your money away for a period of time.

16:13Like actual true story. Not that the other ones are. The rest of all lies. Yeah, yeah, yeah. They're embellished. So I lost my car keys the other day because I lose car keys like on a weekly basis, it seems. So I was locked out of my car. These are my spare set. So now I've lost both sets of car keys so i call the garage and i'm like how much like 400 quid for a set of keys i'm like it's a lump of plastic you're rinsing me but okay borrowed my mrs uh mom's car drove it down the motorway and broke down in the middle of the motorway like literally like the car just cut out and stopped in the motorway so the police come up and go we have to get you towed out the motorway but then you have to pay the fee for us to tow you and then you have to pay another fee to recover your car so they towed me to the garage and then the garage are like now you can pay us again a short story 24 hours 1000 pounds just for me like breaking cars and that was my emergency fund that kind of saved me in that position yeah like in a normal i remember a few years ago that that would have just wiped me out and you know i've got my money in the stocks and shares isa i can't just sell those investments and get it out instantly i've got to pay them there and then and having that emergency fund is just a real example of how it actually did save yeah save me definitely and yeah having that emergency fund and then once you're comfortable with that you have some savings on the side then you can consider investing and sort of putting your money away yeah and i think you know people hear these stats of like you should save 10 or 15 and they get a bit intimidated thinking you know i think a quarter of all households in the uk at the minute are are borrowing to just pay the bills but i think it doesn't need to be 10 right now it's something you can build up to and if you look at how people save they kind of up it as they approach retirement or these goals in their lives anyway.

17:57So just getting started with even a little bit is better than nothing. Yeah, I think that's a sort of a hurdle to overcome. Some people might think that they're not rich enough to invest or same with going to see an IFA or a financial advisor, but it's starting small. It's just getting on there in the first place. And then once you've made that sort of decision and gone on to the investing side or putting money away, then And that's almost like a mental hurdle that's kind of overcome. This is exactly why I hate saving. Because just like you said, my car, throw down, I had an engine problem, two grand.

18:32And then like, I went on holiday in Miami. Two grand. Yeah, that was in the club. No, I went on holiday in Miami. And then actually I was in the club. I had a bit too much fun time and I was meant to catch a plane, miss a plane, had to buy another plane ticket, 500 pounds. This is why you hate saving? This is why I hate saving. Because every time I'm like, oh, I saved a nice amount, something happens. And then I have to dip into my savings. and then you see it just drain down and I'm like, is that because of the savings though? I don't know. They're probably quite helpful. Yeah, yeah. It just feels like you always have a figure in mind and then no matter how much I save, life just throws curveballs at you.

19:03Yeah, and this is why like they're different tools for different jobs. Like your emergency fund is solely there just to blow in LA or whatever you do with it. And then the other pots, like the investments, you have that emergency fund to protect those so that you never touch them. And over the course of a year, two years, a decade, they build up to something that's really significant. So can you have different ISAs? Like how many ISAs can you have at once? Yeah, good question. Right. So there are four, essentially four that you can hold all at the same time. So that's a cash ISA, investment ISA, and I hate saying this word, innovative ISA, and also a lifetime ISA.

19:40So the maximum that you can put away each year in this current tax year is£20 ,000. And that can be between those four different ISAs. But with a lifetime ISA, the maximum you can put away is£4 ,000. But you can transfer your money in between stocks and cash ISAs. So as long as you stick to that£20 ,000 annual allowance for an adult, then that's the rule, the main rule too. One common misconception is you can only have one of each ISA. It's more the money in than it is the amount of ISAs. So I've actually got a load of stocks and shares ISAs because I've been investing for a number of years. I've opened different accounts for different providers.

20:16and at the start of each financial year, I just got to make the decision of this is my stocks and shares ISA for the year. Once I've paid money in, you're kind of committed to them for the financial year. The lifetime ISA is because the government will give you a bonus on top of it of up to a thousand pounds, is it, for the year? Yeah, so the lifetime ISA, so that was introduced back in 2017. Seems so long ago now. But it's a savings account where you can save to get on the property ladder and for retirement as well. So it's kind of a hybrid scheme. So the maximum you can put away is£4 ,000 a year where the government will give you a 25 % bonus.

20:49To open one, you have to be between the ages of 18 and 39, but you can continue saving up until the age of 50. So if you think about from the age of 18 to 50, you can put away£128 ,000 and the government will give you£32 ,000. So if you're looking to use it for a first property, there are some limits you need to be aware of. So it's£450 ,000 for that property. So a few things to think about there. And also lifetime ISAs can come in both stocks and shares and cash ISAs. Yeah, the property focus is, I think, the main one for a lot of people. But the actual long-term benefit of using a lifetime ISA that you're getting up to£1 ,000 a year free from the government and then investing that and compounding that over the long term is quite unique in its benefit there.

21:39and then tax-free at the end as well. Yeah, I mean, when the government came out of this scheme, they said the lifetime ISA isn't a replacement for a pension, but it's sort of targeting those 18 to 39-year-olds and it's a hybrid scheme between buying a property and for pension. But there are differences between the lifetime ISA and a pension. But if we just sort of look at when you put money into a pension, so say you put ATP in, the government tops it up to 20p if you're a basic rate taxpayer. So that means you've got a pound in there. With the lifetime ISA, it gives you a 25 % bonus. So sticking the same figures, if you put 80p in, you get your 25 % bonus, which would be 20p.

22:18So you still have a pound. So they're exactly the same. But then they have, they sort of come into their own depending on if you're a basic rate taxpayer, if you're employed or self-employed and also your age. So yeah, there are a few things to think about. I try not to make that decision. I just have them all. Because I just think, yeah, well, Well, I just think that you kind of, the rules change around pensions, the rules change around certain things. So by having a bit in everything, you kind of just cover all of the bases and you provide a lot of flexibility. You know, pensionable age by the time I retire might be slightly older.

22:48So to have a pot that matures at 60, like a lifetime ISA, might be a good thing. In the same way, a stocks and shares ISA has the most flexibility in terms of I can take the money out whenever I want, but it might not have the same benefits in terms of you know money in as a pension so I think there's nothing wrong with you don't have to sit there going which is the best what is going to be the best for me in 30 years I don't know I just spread my money around all the vehicles I think that's that's right I mean I'm approaching 40 now and I think right well let me get in before the lifetime ISA cuts out so it's just having that it's just opening a door just in case and I think like you say we just don't know what's going to happen in the future whether they'll get rid of the lysa or if there'll be any more pension changes so it's kind of you know thinking about potential changes and sort of getting in there with any kind of scheme where the government's giving you essentially free cash and they don't normally do that yeah exactly grab it with both hands i think this is it like this is one example where there is actually a leg up there is something that is, you know, free cash is a big word, but the lifetime ISA, there's bonuses, there's tax breaks within ISAs.

23:55And this is something that everyone can take advantage of. It's not offshore accounts in Panama or anything like that. It's really accessible. So for us 35 year olds, it's not too late. I can get started now. Yeah, definitely. I'm a LISA. Let's get in that LISA quickly. Before I get to 40. Yeah. Tomein, do you want to hear a fun fact about tax? Don't get me excited. I'm all about tax packs. Are you? I love a bit of tax. This is new to me. Well, okay. So in 1970, the tax code was around 1 ,500 pages. Now, today, 2025, it's 22 ,000 pages. Hefty. Very. So there's around 10 million words. And there's more written about tax than any other type of law or legislation in the whole of the UK.

24:39It's one of the most complicated tax systems on the planet. We know how complicated tax can be, but we've got a tool that can help. Tax App. Tax App make it really easy to file your self-assessment. And if you're one of the 12 million people that needs to do that, the deadline is coming up on January 31st. With Tax App, you don't need to have a lengthy back and forth with an accountant. And you don't need to navigate the complexities of HMRC on your own. You just sign up, add your info, and they'll guide you through it. So you can submit your tax return in as little as 15 minutes. We've left the link in the description.

25:10Prices start from£49. But if you use the code MONEY10, you get 10 % off your first tax filing. That's M-O-N-E-Y-1-0. There's also a QR code on screen if you want to use that. Okay, T, talk to me about your attitudes towards risk. I mean, I like a bit of risk in my investments, but I definitely would say since the podcast, I've toned it down a little bit, not quite as gung-ho and like carefree as I was in risk. So yeah. Yeah, shooting from the hip all the time, weren't you? Yeah. I think personally that you should take risks, but it should always be in areas where you have a unique skill set, an edge, expertise, like your job, things like this.

25:49One area that I wouldn't take any risks is compliance. Yeah, the risk changes you grow in business and you need to be on top of it, which is why we partner with Vanta. Vanta automates a lot of risk processes and helps you see your risks in a centralized platform so you know what really needs your attention. Besides risk, the main thing Vanta does is automate compliance with security protocols you need to scale, like GDPR, HIPAA, ISO 27001, and SOC 2. The beauty of Vanta is they make it easy to prove you're compliant with these standards, saving you up to 90 % of the time it takes, and on average half a million dollars.

26:23If you know what these acronyms like SOC 2 are, you probably need Vanta. You can book in a demo at vanta.com forward slash making money. There's a link in the description. I just wanted to talk about the investment point, just because I want your thoughts, because I think anyone that's kind of sat back and looked at investments over the last year or two will have seen what happened in 2020 where everything exploded and it's probably now seeing it all collapse and I know there's a lot of people that have an attitude of oh like it's it's all really risky you know when we're talking ices and structures and long term like how do you kind of approach that that's a good question and I think you know from the pandemic everything tanked and it just it brought about all this nervousness from you know even sophisticated investors those who'd been investing for a while as well but we have to remember when you're investing, there is risk.

27:12It does go up and down. You can never buy sort of the average fund. It's always up and down, up and down. But at the same time, now that things have, 2022 was a really bad year for a lot of the markets. And that is actually a time that you can start investing because you're buying low. So in a way, you have to think of it slightly differently. So you're buying low there's something called pound cost averaging so you put money away each month over a period and obviously the stock market goes up and down if you're buying low so when the stock market goes down then you are buying at a lower price whereas if you're buying high that's something that you don't really want to do so pound cost averaging it's sort of taking the average across all those all those periods i think it also just removes the decision in terms of like people sitting on the sidelines going, oh my God, when do I put my money in?

28:07When do I put my money in? If you just have a ritual where you invest on a monthly basis every month, the data shows that doing that long-term is pretty sensible. And it just takes away that like, is now a good time to buy? Is it a bad time? I get paid, I buy into the stock market and it removes that. And over the long-term, you hopefully do quite well. Yeah. It takes the emotion out of investing. If you're just putting away say 25 50 pound a month you're not really thinking about it but that money is making it's working harder for you when it when it's lower a lower asset price if you think of it from this perspective if i can sell you something for 10 today and you're happy to buy it and then it's worth five tomorrow and you buy it again and it goes back up to 10 even though the price has stayed the exact same overall you know in terms you've made five on on that move so So consistently buying the downs in the market.

28:58It averages at your price. Well, you're averaging at different prices and you take benefit of the rises in the market. I mean, through pound cost averaging, you could actually make money even in a flat market if it, you know, oscillates or fluctuates. So last year, I lost this, it's very personal, I lost a zero in my net worth because I had a lot of money in crypto and the market crashed. From 10 to zero. 10 to one. 10 to one. Yeah, so it's always good to, when it crashes, buy then, buy when it crashes and then keep buying. The long-term trend of the stock market over a long period of time is around 9%, 10%.

29:33But if you look at the returns on any year, the actual figures are all over the show. But the idea is that when markets are down, you're buying in. Warren Buffett basically said that the stock market is one of the only examples where people aren't happy when there's a sale on. They think, oh, I'm not buying that because it's down in price. I only want to buy it when it's rising in price. but it's like Mac going or Apple going, oh, it's 50 % all off laptops. And people are like, I don't trust that. I'm not having that. These businesses continue to provide value in the world. They're not going anywhere just because the values fell short.