3 reasons to start a Stocks & Shares ISA in 2025, and not all of them are good!

Want to start a Stocks and Dividends ISA in 2025? There are great reasons to do that, but it’s easy to get off on the wrong foot.

They don’t pay taxes

Am I crazy to suggest that the tax-free status of an ISA is not a good reason to get one? After all, we can invest up to £20,000 a year and not pay any tax.

That’s for every benefit, forever. So even UK ISA billionaires won’t owe the Inland Revenue a penny if they get the money.

Obviously, not paying tax is a very desirable thing. All I’m suggesting is a variation on the old saying: “Don’t let the tax tail wag the investment dog.“

I think the key, in particular, is to invest in something that I can research and understand. And then, if there’s a way to do it tax-free, that’s a bonus.

Fortunately, for me, the Stocks and Shares ISA fits both criteria.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Request immediately

It’s tempting to look Nvidiawho is one of the winners in 2024. It’s up nearly 180% in the last 12 months, and up 2,200% in five years.

“Wow, if I get the winner of 2025, I can be rich in no time,” one might think.

The problem is, finding last year’s winners is easy. Next year, not so much. And piling a whole load of money into a stock that we think might go up in the short term opens us up to a lot of risk.

I have seen many promising technology growth stocks over the decades. Some have done very well. Some have crashed and burned.

So, thinking that buying shares in an ISA could be the way to go immediately wealth? I think that’s a dangerous way to approach it.

Build long-term wealth

That brings me to the first reason why I invest in a Stocks and Shares ISA. I want to use some of my choices, FTSE 100 insurance company Aviva (LSE: AV.), for example.

We can see from that stock price chart that it wasn’t just a million dollar thing. However, Aviva paid a dividend of 7%.

If someone invests £1,000 in Aviva shares, they should have £1,070 after one year’s interest is added.

And another £70 in dividends after the second year? Actually, no. If they reinvest their dividends each year, they will have an extra 7% of £1,070 which is £74.90. It’s only about five, but thanks to the miracle of compounding, it should get bigger year after year after year.

Every £1,000 invested annually at this rate can grow to £42,500 in 20 years. Or more than double that to £98,000 in just 10 years.

ISA strategy

Assignments are not guaranteed. And the insurance sector carries a lot of risk, especially in the short term. So I go for diversification in all equity stocks from different sectors to reduce the risk.

And why choose Aviva as an example? Dividend yields closely match the average annual total return of the FTSE 100 over the past 20 years. So I think it’s a realistic goal.