How to start your ISA journey in 5 easy steps
Whether you're new to the world of ISAs or looking to fine-tune your investment strategy, you're in the right place.
Let’s kick things off by decoding the ISA. ISA stands for individual savings account and it’s a way to save or invest without taxes eating into your gains. That’s right, your investments and any income in your ISA are tax-free.
Sounds good, doesn't it? Now, there are a few things to bear in mind here, so let's dive into the steps to get your ISA ball rolling.
Step 1: Define your goals 🎯
We’ve said it before, we’ll say it again. Having investing goals is a great place to start. Whether you're saving for a dream holiday, a new home, or your retirement, having a goal in mind helps you stay focused and motivated to achieve it.
Some people have a specific money target, such as to hit £10,000 within five years. But there’s nothing wrong with just saying you want a bigger pot in the future and trying to squirrel away as much money as possible in your ISA as you go along.
Think about your time horizon. If you're planning to buy a house in the next couple of years, investing might not be the best fit due to market fluctuations. What if the market went through a bad patch? Two years might not be enough time to fully recover!
But if you're thinking long-term, you would hopefully have time to ride out any ups and downs on the market, and investing could be your golden ticket!
Step 2: Assess your finances 💸
Before diving into investments, let's get your finances in order.
Create a budget to understand your income and expenses. We’ve got loads of content about this to check out, like our budgeting masterclass, and this blog about mastering your payday routine. But to summarise, work out your monthly income and minus off all your expenses, making sure you allocate some for an emergency fund.
It’s important to get your finances in order so you know how much you can afford to invest.
Step 3: Fund your ISA 📈
Ready to invest? Great! You can either contribute a lump sum or set up regular monthly contributions. Setting up a direct debit can make this process hassle-free. If you’re not sure which route to take, we’ve got another blog to help you decide.
Before you jump in, remember there's an annual allowance of £20,000 for adult ISAs, with a £4,000 limit for the lifetime ISA. That £4k is included in that £20k, so if you managed to max out your LISA, you’re left with £16k to put in your ISA.
It’s also important to note that lifetime ISAs have a 25% exit penalty charge if you withdraw money before age 60 for any reason apart from using it towards buying a first home. That may mean you actually get less back than you put in, so watch out!
Step 4: Choose your investments 🤔
Now, the fun part! Deciding where to invest your money. Maybe you’re more comfortable with higher risk investments, or perhaps you prefer a more cautious approach. Either way, there’s something for everyone.
Funds are a popular choice among beginner investors, as they’re an easy way to diversify your portfolio, because you can invest in lots of different assets in one fell swoop.
Investing in a fund is like buying box of assorted biscuits. You get different flavours, shapes and sizes all inside a single investment. Essentially you are spreading your risks with a fund – if something goes wrong with one of the companies or bonds in its portfolio, you have all the other holdings to act as a cushion and hopefully minimise the damage.
Shares are riskier as you’re buying a stake in just one company. Say you’re a sausage roll enthusiast and you buy a share in Greggs. You’re relying on Greggs and only Greggs to perform well, for you to make a profit.
Dodl has a streamlined range of shares, funds and themed investments, that makes it super easy to invest in what you believe in. If you’re still unsure about this, check out our blog (last one, promise!) about the difference between shares and funds in an ISA.
Step 5: Hit the ‘buy’ button 🟢
You’re almost there! With Dodl, buying shares, funds or themed investments is easy as pie. You simply input how much you want to invest and submit your order, which will be filled at the latest available price at that time.
Dodl processes orders once a day, so any submitted after the daily cut-off time of 3pm will be processed the next working day. You’ll be able to cancel your order up to the daily cut-off time.
Ready to begin your ISA journey?
If you have any questions about ISAs, or anything else, feel free to get in touch via the app. The team are happy to help!
🔔 Always remember, the value of your investments can go down as well as up. Dodl doesn’t give advice, so if you’re unsure about investing, it’s always best to speak to a financial adviser. ISA rules apply.