My Stocks and Shares ISA is full for this financial year. If I didn’t already have one, though, I’d open one today.
With share prices falling due to high inflation, rising interest rates, and a potential recession, it might be tempting to wait. But I think this would be a mistake.
Opening a Stocks and Shares ISA today would give me the longest possible time to invest. And it would allow me to take advantage of some great opportunities now and in 2023.
Predictability
One reason for getting started today is predictability. It’s much easier to forecast what share prices will do over a long period of time than in the short term.
Take FTSE 250 stock Diploma as an example. Despite a 35% increase in earnings per share, the stock price has fallen by around 14% since the start of the year.
The story is quite different over the last five years, though. The company’s shares have increased by an average of 19% per year, supported by 12.5% growth in earnings per share.
I’d therefore want to own such shares for as long as possible to give myself the best chance at predictable returns. As such, I’d get started today via a Stocks and Shares ISA.
Compounding
Starting as soon as possible is also key to compounding my returns. Whatever I manage to achieve as an investment return will be better if I’m invested for longer.
Suppose I invest £1,000 per month and achieve a 6% average annual return. After 30 years, my investment will be worth just over £1,000,000.
The returns are dramatically lower if I start later, though. Investing for 20 years at the same rate means an eventual return of £465,000 – less than half of the return after 30 years.
Starting as soon as possible is crucial for generating the big returns in later years. That’s why I’d open an ISA today.
Share prices
I also think that whatever share prices do in 2023, there are some attractive opportunities right now.
As an investor, I look to buy shares when they trade at low prices relative to the future cash the underlying business will produce. Falling share prices make this much easier.
Apple is a good illustration of this. The Apple share price has fallen from $182 at the start of the year to $144 today.
Apple shares are therefore better value than they were. The company produces the same cash for its investors regardless of whether they paid $182 or $144 per share.
I think there’s a decent chance that Apple shares might fall further in 2023. If it does, then buying the stock in a Stocks and Shares ISA seems like a good idea to me.
The post Is now a good time to open a Stocks and Shares ISA? appeared first on The Motley Fool UK.
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Stephen Wright has positions in Apple and Diploma Plc. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.