Are Stocks and Shares ISAs in Danger as Sell-Offs Push the Stock Market Lower?
- Editorial Staff
- Apr 21
- 4 min read
Market turbulence can affect the value of your Stocks and Shares ISA, but with a strong history of higher returns, it’s important to stay level-headed in the face of stock market sell-offs.
Unlike Cash ISAs, a Stocks and Shares ISA gains value based on the performance of the stocks that are held within the portfolio. This has paved the way for some significant outperformance against Cash ISAs over recent years, with the S&P 500 in the United States doubling in value since April 2020.
In recent years, the strength of Wall Street has helped the number of ISA millionaires increase rapidly. By 2023, there were 3,180 ISA millionaires, compared to just 1,030 three years before.
Because of the annual £20,000 tax-free allowances for individual savings accounts, we can expect the majority of ISA millionaires to be Stocks and Shares ISA holders who have grown their wealth thanks to the improving stock market outlook.
However, 2025 has been a challenging year for investing so far, with geopolitical and macroeconomic stresses impacting the performance of the S&P 500 in the United States while adding to the volatility of the FTSE 100 in the United Kingdom.
These uncertain movements in the market have paved the way for investment banks like Goldman Sachs to cut their forecasts for 2025, dropping their prediction for the S&P 500 to 6,200 at the end of the year, as opposed to its initial forecast of 6,500.
This negative trend is likely to continue impacting Stocks and Shares ISA holders, who may struggle to see the same profitability in 2023 and 2024 over the months ahead.
So, what should investors do? Looking at the historical performance of Stocks and Shares ISAs, there’s no need to panic.
ISAs Remain the Best Flexible Tax-Free Option
Even though Stocks and Shares ISAs have been impacted by global stock market sell-offs in recent weeks and months, they remain the strongest option for investors who are looking to grow their wealth flexibly.
While pensions offer a significant amount of tax efficiency, the ability to withdraw your ISAs before retirement makes individual savings accounts a top option for anyone looking to make the most of their savings while escaping the clutches of the taxman.
There are also many benefits associated with Stocks and Shares ISAs, including a £20,000 tax-free allowance each year which means you pay no capital gains tax (CGT) on your earnings.
Any dividends you receive will also be entirely tax-free because they don’t count towards your annual dividend allowance when kept in a Stocks and Shares ISA.
Your withdrawals from a Stocks and Shares ISA are also relatively straightforward and are only delayed by account managers selling your individual investments before releasing the money to you.
History Shows Resilience
Although UK adults generally favour Cash ISAs over Stocks and Shares, with 7.9 million opting for fixed-rate Cash accounts compared to just 3.8 million Stocks and Shares subscribers in the 2022/23 tax year, historical returns show that the latter consistently outperforms the former.
Looking back at the past 10 years of ISA performance, Stocks and Shares ISAs have averaged an annual rate of return of 9.64%. This far surpasses Cash ISAs, which are largely pegged to the Bank of England’s base rate of interest.
The history of outperformance for Stocks and Shares ISAs is also significant when taking recent inflation rates into account, which can cause some lower-yielding accounts to devalue during periods of high inflation.
What Should I Do if My ISA Is Losing Money?
Stocks and Shares ISAs involve greater risk than Cash ISAs because the money invested relies solely on the performance of the stocks bought. However, over the long term, they have an upward bias that generally rewards adopting a long-term mindset.
It can certainly be stressful seeing your profits become more volatile when markets experience sell-offs, but staying focused on the future can help you ignore short-term noise and make it more likely that you’ll achieve your financial goals further down the line.
If markets continue on a downward trend and you want to take action to build more resilience for your Stocks and Shares ISA, it’s worth diversifying your holdings across different investment types, such as shares, bonds, and property. If you use an account manager to look after your portfolio, communicating this with them can help to build a portfolio that’s stronger in challenging market conditions.
Remember to Look After Yourself
More importantly, you should look after your own financial needs. Stocks and Shares ISAs are designed to be a long-term investment option and have historically performed well over time.
But challenging market conditions affect more than just our savings, and if you’re concerned about your own financial health, it’s worth revising your investment strategies to make sure you maintain your comfort in the here and now.
Remember to look after number one when market downturns threaten your financial health. Stocks and Shares ISAs have the resilience to generate strong returns over time, so maintaining a strategy that helps you to achieve your financial goals is the best course of action for yourself and your savings.
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