Are Stocks and Shares ISAs a good investment in 2023?

Edward Sheldon explains how Stocks and Shares ISAs work and looks at some of the investment options available within these accounts.

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.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

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.

Investors have a lot of options these days. Thanks to advances in technology, it’s now possible to put money into a wide range of products. So, are Stocks and Shares ISAs a good investment? Let’s discuss.

Tax-efficient investment vehicles

The thing to understand about Stocks and Shares ISAs is that they’re not actually investments.

Instead, they’re investment accounts or ‘vehicles’.

Within these accounts, one can invest in a wide range of different assets and products including investment funds, investment trusts, index funds, exchange-traded funds (ETFs), UK shares, international shares, and more.

And all gains and income generated inside them are completely tax-free (which is a huge advantage when building wealth for the long term).

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Access to top products

There are certainly some fantastic investments available within these ISAs, however.

Take the Vanguard FTSE Global All Cap Index, for example. This fund, which is available through ISA providers such as Hargreaves Lansdown, AJ Bell, and Interactive Investor, provides exposure to over 7,000 stocks globally (including the likes of Apple, Amazon, and Tesla) for a very low fee of around 0.2% per year (plus platform fees).

Over the last five years, it has returned around 47%, which is a decent figure. Past performance isn’t an indicator of future performance though.

Another fund that’s worth highlighting is Fundsmith Equity. This is an actively-managed global equity product that invests in high-quality businesses. Run by portfolio manager Terry Smith, it has an amazing track record, having returned about 15% per year since its launch in late 2010. There’s no guarantee it will deliver strong returns going forward, of course.

Stocks can be great investments

Individual stocks – which are available to buy via most Stocks and Shares ISAs – can also be great investments.

Take Apple, for example (which is listed in the US). Over the last five years, it has risen about 220%, meaning that if I had invested $5,000 in the company five years ago, my pot would now be worth around $16,000.

Another example of a stock that has done really well for investors over the long term is London Stock Exchange Group (which is listed here in the UK). Over the last five years, shares in the financial markets infrastructure company have risen about 75%. Investors have also received dividends.

Generating strong long-term returns

In conclusion, it’s definitely possible to generate strong returns within a Stocks and Shares ISA.

One’s returns will depend on the mix of investments, however.

Ultimately, the key to success with these ISAs is building a diversified investment portfolio that includes a mix of stocks from different industries (technology, healthcare, consumer goods, financial services) and geographic regions (UK, US, Europe, and so on).

By taking a diversified approach like this, one can limit the risk of investing in a dud asset, and give oneself a great chance of achieving strong long-term returns.

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.

Ed Sheldon has positions in Amazon.com, Apple, Hargreaves Lansdown Plc, London Stock Exchange Group Plc, and Fundsmith Equity. The Motley Fool UK has recommended Amazon.com, Apple, Hargreaves Lansdown Plc, and Tesla. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 For Beginners

Investing For Beginners

2 cheap shares that are at 52-week lows

Jon Smith reveals what he believes to be two cheap shares that have been oversold in the current market and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing For Beginners

The Barclays share price keeps surging! Was I wrong to sell the stock?

Jon Smith explains why the Barclays share price is still rising, even though he feels that further gains could be…

Read more »

Investing Articles

2 ISA mistakes I’m keen to avoid

Looking to make the most of your ISA? Here are two errors Royston Wild thinks all savers and investors need…

Read more »

Investing Articles

Are stocks and shares the only way to become an ISA millionaire?

With Cash ISAs offering 5%, do stocks and shares make sense at the moment? Over the longer term, Stephen Wright…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing For Beginners

Up 40% in a month, what’s going on with the Burberry share price?

Jon Smith points out two key catalysts for the move higher in the Burberry share price, but questions whether anything…

Read more »

Investing Articles

1 ISA mistake to avoid

This commonly overlooked investing mistake can cost ISA investors tens of thousands of pounds over time. Here's how I'd try…

Read more »

Investing Articles

Vodafone share price forecast: here are the latest analyst predictions

The Vodafone share price takes another tumble as earnings fail to impress, but is this now a buying opportunity? Here’s…

Read more »

Close-up of British bank notes
Investing Articles

Where could the Barclays share price go in the next 12 months? Here are the latest forecasts

The Barclays share price is up 70% since January, with another 34% gain potentially on the horizon, say analyst forecasts.…

Read more »