Savers who have been desperate to secure a decent return over the long term have begun to turn to stocks & shares ISAs, which have the potential to deliver better returns than cash ISAs, albeit with greater risk. However, the latest findings of Investment Life & Pensions Moneyfacts have revealed that the performance of stocks & shares ISAs in 2015/16 is on course to be at its worst since the 2008 financial crisis.
The figures showed that the average performance of a stocks & shares ISA has dropped by 2.7% over the 2015/16 tax year so far – a fall in performance that has only been beaten by the 2008/09 tax year, when it dropped by 20.8%. This means that the average stocks & shares ISA has failed to deliver positive growth in seven out of the 17 tax years since ISAs were introduced to the savings landscape. Meanwhile, the average interest rate on cash ISAs (both fixed and variable rate) stands at 1.44%.
The dire performance of these savings vehicles is further highlighted by the fact that just 232 out of the 1,009 ISA funds surveyed (22%) delivered growth over the 2015/16 tax year, with the best being offered by UK Smaller Companies, which experienced growth of 8.5%. At the other end of the scale, the worst performer was found to be Asia Pacific Excluding Japan, which suffered heavy losses of 9.5%.
This dip in performance has been attributed to the volatility of the global economy, as Richard Eagling, Editor of Investment Life & Pensions, explains: "The heightened market volatility and ongoing uncertainty facing the global economy has naturally had an adverse impact on the performance of most stocks & shares ISAs," he said, "with the vast majority failing to deliver positive growth this tax year. This has led to the unusual position whereby savers would have achieved a better return from a cash ISA in the 2015/16 tax year, even though these rates are at record lows."
Performance has certainly undergone a downturn, but this does not necessarily mean that investing in a stocks & shares ISA is a bad idea – provided you are in it for the long haul. For instance, the average stocks & shares ISA fund has grown by a staggering 175% in the 17 years since its introduction, and since then, only three funds out of the 434 available have delivered a loss. As a result, if you are looking for a long-term investment and are comfortable with the risks involved, there is a "compelling argument" for investing in a stocks & shares ISA, points out Richard.
So, if you fancy doing a bit of research into whether a stocks & shares ISA could be for you, read up on our guide and check out a selection of available deals. It may also be a good idea to get some independent financial advice first, just so you know what you're getting into.
Check out some stocks & shares ISAs
Read our guide on stocks & shares ISAs
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