Six steps to boost your ISA confidence

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only. ISA eligibility and tax rules apply.

Kicking off your stocks and shares ISA can feel empowering and intimidating equal measure - this is your money we’re talking about, after all. Sometimes it’s the feeling that there’s so much we don’t know at the start that brings in a few nerves. With that in mind, here are some concrete steps we can all take to build our ISA confidence.

First things first, get a good grip of the main tenets of your stocks and shares ISA.

• You have a £20,000 allowance for the current tax year - you don’t have to use it all and can add in whatever works for your budget.
• You can have multiple stocks and shares ISAs, as well as the other flavours like cash ISAs, just keep track of your contributions and don’t go over your overall £20,000 allowance.
• Plan first, choose assets second. If you have a goal like a house deposit or funding that gap between early retirement and your pension kicking in, how much will you need? How long do you have to invest? How does that affect your risk tolerance? Getting the balance right between these elements gives your portfolio structure and can guide which assets you choose.
• You can take your money out of a stocks and shares ISA when you like but, to give your investments the potential to compound, time is your friend. Some people target a minimum of five years to let companies show you what they’re about.

ISA investors, especially new ones, can contract a major case of “What now?” syndrome when their account is set up and they’re staring at thousands of stocks to choose from. Choice paralysis is real but, luckily, Robinhood has some tools to help you get closer to a set of assets you might find helpful.

The stock screeners on your Robinhood app can help highlight stocks with specific characteristics, to streamline your search. Looking for a dividend yield over 5%? There’s a screen for that. How about a restaurant stock with a ‘Buy’ analyst rating and a price-to-earnings (P/E) ratio of at least 5x. Yep, there’s a screen for that too.

Putting together a portfolio of stocks from scratch can be daunting. Chances are, though, you might already be harbouring some corporate insight without even knowing it. Which products and services do you love using in work and which drive you mad? Where do you spend your free time and what do you spend your hard-earned cash on? You’ll probably already recognise some market leaders and some underloved upstarts just through your own personal experience. Of course, you’ll have to do some sums to see if their shares merit a spot in your portfolio but the point is that there are real companies underneath the share prices and your perception of them counts.

Just like an artist might prep their canvas with a different colour to get rid of that intimidating white starting point, give yourself a helping hand by starting with stocks you already know. Whether you end up buying them is besides the point - it’s all about starting.

On that note, the mantra of new ISA investors should be “progress, not perfection”. Investing isn’t a competitive sport and putting pressure on your first picks to zoom up the page could well unearth some unhealthy expectations and behaviours. Give yourself licence to learn how stocks and the market move with your initial investments.

Keep an eye on what the market looks for when your companies report results and how prices move depending on what’s happening in the world and in certain sectors. If it all feels like a coinflip, something has gone wrong. It should feel like a measured, repeatable process based on earnings, company management and valuations. Starting with small amounts and seeing how it all plays out in the real world is worth it early on in your ISA journey.

That’s a good segue into a very important element of investing in your stocks and shares ISA; you. The prospect of making or losing money really can play with our heads, especially when it comes to making that final decision to buy or sell a stock. All those thoughts of what might happen if we hit the button too early start to build up and suddenly we’re acting emotionally, not logically.

The best way to reduce the chance that fear or greed starts running your portfolio is to set up schedules and guidelines at the start, so that you aren’t tempted to act rashly in the moment. Only buying stocks in a certain valuation range, only selling when certain conditions have been met like a new corporate strategy or drop in earnings, and investing on the same day every month are just a few examples some people use to make the whole process feel more regimented.

This isn’t to say you can’t try to spot opportunity but if you find yourself acting on a whim, remember there are much longer-term goals here as well as a risk profile to stick to. If it takes you to go for a walk or make a cuppa to clear your head, that’s not a bad habit to factor into your investment decisions too.

From the outside, ISA investing can seem like an impenetrable world full of tax rules and market maths. It’s maybe why so many UK savers put it off. You don’t have to become the world’s greatest investor overnight though. Allowing yourself to learn what a good company looks like, how the market responds to news and how you react to it all are all important parts of the puzzle. That means making a point of trying to learn from quality sources instead of just being on the receiving end of high octane, attention-grabbing social media content.

That can be tough but seek out your sources and make sure it’s in a language you understand - you want content that feels approachable and that doesn’t require a thesaurus to get through. At Robinhood, we always try to talk to our users in plain language, about the personal finance topics and economic stories we think matter. Keep an eye on our Learn page to stay up to date with the headlines moving markets.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.

Robinhood doesn’t provide tax advice. You should seek advice if you have any questions regarding the impact your investments will have on your income tax and tax filing requirements.