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Can an Investment ISA Help Me Beat Inflation?

Can an Investment ISA Help Me Beat Inflation?

Inflation within the United Kingdom has been one of the most pervasive financial “demons” in recent times. In fact, statistical figures illustrate that these rates have now reached as high as three per cent. There are two downsides to this observation. First, the buying power associated with the pound has been dramatically reduced. Secondly, a standard bank account is no longer sufficiently capable of offsetting such a fall in value. One way to circumvent this situation is to become involved with an investment ISA (also known as a stocks and shares ISA). Let’s take a look at how this vehicle can be an excellent method to beat inflation as well as some of the benefits that you can expect to enjoy along the way.

The Theory Behind a Stocks and Shares ISA

The principle of a stocks and shares ISA is rather straightforward. The money that you deposit will be allocated into several assets. This can help you to accrue more wealth as opposed to earning interest alone. However, it is wise to mention that wealth managers will only choose those investments which have been associated with relatively high rates of return. Your money will therefore be working for you as opposed to the other way around.

Your Tax Obligations

Another very important point to bring up involves your tax obligations. Much like with other forms of an ISA, you will not be subject to capital gains tax. This is also relevant in the event that you choose to liquidate the holdings within this ISA. Dividends likewise call into this category. You are able to earn an allowance of up to £5,000 pounds without being obliged to pay capital gains tax. However, this level will drop to £2,000 pounds in April 2018.

Investing in a Bullish Market

We are all aware that the financial markets are subject to natural swings between a bullish (profitable) state and a bearish (negative) outlook. However, the financial landscape has been optimistic for a number of years and this will generally be reflected in the value of a stocks and shares ISA. Even if the momentum of the market reverses, stocks and shares ISAs are centred around more conservative assets. This can help to supersede any open-market volatility.

Accruing Additional Wealth Over Time

To be clear, any type of stocks and shares ISA is meant to be used as a buffer against difficult financial times (such as heightened inflation rates). This is the main reason why it can be employed as a “nest egg” in conjunction with other common investments such as a pension plan or a professionally managed portfolio.

There are many different types of ISAs available and each is associated with its own discrete set of benefits. It is therefore wise to perform a fair amount of research in order to ascertain which type can represent the best option for your unique needs. Thankfully, you will no longer have to be a victim of inflation!

This is  guest post by Tim Baker. He is a proud father of 2. A keen blogger on finance, business and career.

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