£100 a month to invest? I’d go for a Stocks and Shares ISA in 2021

Using a Stocks and Shares ISA is a great way to maximise returns in 2021. Even £100 invested per month could make a big difference to your nest egg, says this Fool.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Using a Stocks and Shares ISA is a fantastic way to maximise your returns in 2021. Even £100 invested per month could make a big difference to your retirement nest egg.

Over a 25-year period, this amount, invested at the 8% rate of return the FTSE 100 has managed in recent decades, would produce a portfolio of around £87,700. A 5% yield would give you an annual income of around £4,300, a welcome addition to a state pension. When compared with the cash savings equivalent of £30,000 over the same period, the advantages of investing via an ISA are obvious. 

What is a Stocks and Shares ISA?

I’ve noticed some confusion around ISAs, but they’re far simpler than many people think. An ISA isn’t an investment in itself. It’s a tax-efficient wrapper. In the case of a Stocks and Shares ISA, it’s a wrapper for an investment account. The advantages to investing through one are twofold. Firstly, your dividends are tax-free, and secondly capital gains tax isn’t paid on any shares you sell.

Like any other stocks and shares investment, the value of your ISA will ebb and flow with the stock market and your choice of securities. This is why it makes sense to invest in stocks and shares for the long term. However, unlike many other investment accounts, such as a SIPP or high-interest cash savings account, you can make withdrawals from your ISA at any time and without a penalty. This means you always have access to emergency funds should you need them.

I think the best ISAs are those where you can choose whatever you want to put into them, rather than one that limits you to only picking funds from the company providing it. This is mainly because I like the flexibility of choosing my own shares and changing my investments to suit me, and not the fund provider. 

So, what should I put in it?

Assuming I can pick my own stocks for my ISA, I like dividend stocks. The reason for this is the compounding benefit you get from reinvesting the dividends. In addition, the FTSE 100 currently offers many shares with dividends with 5%+ yields, far in excess of anything we’ll get in a cash account, even in a high-interest one. GlaxoSmithKline (LSE: GSK) is one example, currently yielding around 5.7%. A variety of such stocks will help protect investments from any losses too.

Moreover, with vaccines for Covid-19 on the way, it’s hoped that the economy will begin to grow again. Shares yielding dividends may have the future financial strength for increases in yields, improving returns even more.

Obviously, the more money you can invest per month, the better your nest egg is likely to be. But, even investing £100 per month in a Stocks and Shares ISA will make a difference and is a great way to maximise your potential returns throughout 2021. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rachael FitzGerald-Finch owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »