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Investors should take the ‘little and often’ approach to ISA saving

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Written by: Paloma Kubiak
25/02/2016
More than half of investors are unaware of the current ISA allowance, prompting recommendations that people should take the ‘little and often’ approach to saving.

According to new research, 55% of investors are unaware that the current tax-free ISA allowance stands at £15,240.

The government sets its annual cap on how much individuals can invest each tax year but analysis from The Share Centre found that of the 1,500 people surveyed, 41% of investors believe they should be able to put in as much as they like into their stocks and shares ISA.

Over the past three years, the average annual ISA contribution from a Share Centre customer has been £8,349, highlighting how savers are unaware of how much they can put into an ISA.

While the current £15,240 allowance can seem daunting for some, the key message for investors is that large pots can be accrued from relatively small investments.

The Share Centre therefore recommends that people invest often regardless of how little that amount may be in order to benefit from ‘pound cost averaging’.

This is a technique that reduces exposure to falling markets when investing a lump sum.

By investing at regular intervals more shares are purchased when share prices are low and fewer shares are purchased when prices are high.

Key facts about the ISA allowance

  • Your ISA allowance doesn’t roll over to the next tax year. As long as you pay in money before the end of the tax year, you can always invest it later
  • Invest at the start of the tax year (6 April) as you’ll get more benefit this way
  • Keep adding to your ISA each year as you get a new allowance each tax year

Start early and save often

Richard Stone, chief executive of The Share Centre, said: “Decisions on the ISA allowance can often be reduced to political point-scoring. The fact is, the majority of people don’t know what the current allowance is and for the majority, that doesn’t actually matter. The message that does, however, is that the best approach to saving is to start early and to save often, regardless of how little you invest.

Stone adds that drip-feeding money into an investment rather than investing a lump sum can additionally help reduce exposure to volatility.

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