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Guide to stocks and shares ISAs

What is a stocks and shares ISA?

A stocks and shares ISA is a tax-efficient investment with the potential to grow your money over the medium to long-term. It allows you to invest up to £20,000 this tax year, although you can invest smaller amounts too. The value of an investment in a stocks and shares ISA may go down as well as up and you may get back less than you invest.

Balancing risk and return

With stock market based investments if you are prepared to accept that your money is at greater risk, over the long term you have the potential to receive a higher return on your investment.

What is a fund?

When you open a stocks and shares ISA with us you pick which of our funds (or a combination of them) you want to invest in. Each fund has a different objective and invests in different assets.

Your money is pooled together with other investors and spread across lots of different investments. That means you are spreading and reducing your risk. The dealing costs are shared and all the admin and paperwork is done for you, at a fraction of the expense of doing it yourself.

What are bonds?

Government Bonds are IOUs issued by governments. When you buy a bond you’re loaning money to that government, and in return you receive a steady stream of interest. The value of the bond can also rise and fall before the bond matures.

Corporate Bonds instead of lending money to a government, you are lending money to companies. Again, you receive regular interest, but the value of the bond will rise and fall with market conditions.

Higher yielding bonds these bonds are issued by companies or governments with lower credit ratings. They pay higher rates of interest, but there is greater risk of non repayment, so the risk is higher.

What are gilts?

Gilts are a particular type of bond, but instead of loaning your money to a company, you're loaning it to the UK Government. This makes them one of the more secure forms of investment although their value can still be affected by changes in interest rates and inflation.

What are shares?

A share buys you a small portion of a company. The value of your shares go up or down depending on how the company is performing, and general market conditions. Investing in shares offers a greater potential return than investing in cash savings or bonds but with a greater level of risk to your money too.

We have five types of shares in our funds

UK shares are companies within the 600+ companies on the FTSE All-Share Index. They are generally considered less risky than overseas and emerging market shares.

Overseas shares come from developed economies like the US and across Europe. Investing in overseas shares spreads your risk across different countries and gives you a chance to benefit from the potential of stock markets around the world.

Global shares shares from companies from around the world, including both developed (such as the UK, US and Europe) emerging markets (such as China, India and Brazil).

Global property shares shares of companies from around the world which manage portfolios of properties, including industrial and commercial properties.

Emerging market shares come from countries with fast-growing economies that are not yet as strong as those in the UK or US. Examples of emerging markets include China and Brazil. Investing in emerging markets comes with a higher level of risk but also has the potential for better returns than developed markets.