3 reasons this May could be a great month to start an ISA, even without a spare £20,000

Every April, there is a mad frenzy as lots of people rush to make the most of their annual ISA allowance before the end of the tax year. Then, many people do not think about an ISA again until the same thing happens 12 months later.

With April fast moving into the rearview mirror and many people probably spending more time in the sun than thinking about finance, starting an ISA may be low down many people’s priority list this May. But actually, I reckon this could be an ideal time to start one – even for someone who has only a few hundred pounds to spare.

Finding the right ISA matters – a lot

One reason is that there is a plethora of Stocks and Shares ISAs available on the market. They each have their own structures, so while the basics may seem similar, things like annual fees, commissions, and minimum charges may vary.

The differences can seem small. Over years and decades, though, even small-seeming differences can add up.

Sometimes in the last-minute April rush to put money into an ISA, people do not take time and proper effort to weigh up what ISA would suit their own needs. Over time, that can be a very costly mistake.

With over 10 months left until the next ISA contribution deadline, acting now means someone has plenty of time to make a well-informed choice.

Getting dividends sooner, not later

A Stocks and Shares ISA can, if things go well, help someone build wealth in a couple of different ways. One is dividends and another is capital growth thanks to an increase in share price.

Some companies, like British American Tobacco and Unilever, pay out dividends quarterly. A few shares even pay more frequent dividends.

But if someone sits on their hands until the ISA deadline next April, they will not earn any dividends until they actually buy shares.

That is a missed opportunity in my view, given that FTSE 100 companies alone pay out well over £1bn to shareholders every week on average in the form of dividends.

Some shares look cheap right now!

When it comes to capital growth, just as dividends, there are no guarantees. Share prices can move down as well as up.

But one reason I have been actively buying shares this May is that, following recent stock market volatility, I think some shares now look like potential bargains.

For example, I already owned some Safestore (LSE: SAFE) shares in my ISA — but I bought some more this month.

The self-storage operator has seen its share price fall by 28% over the past five years, though it is up by a fifth already since a low point last month.

Demand for self-storage tends to be resilient. Actually, I expect the industry to keep growing over the long term: it remains far smaller in the UK than in the US.

The company flagged up ongoing “macroeconomic uncertainties” when unveiling first-quarter performance and I see a risk that weak economic performance could hurt corporate spending on storage.

However, Safestore has a large customer base, many of whom leave their goods in storage for years at a time. It has a well-known, distinctive brand and a proven business model. First-quarter revenues grew 2.6% year on year.

The post 3 reasons this May could be a great month to start an ISA, even without a spare £20,000 appeared first on The Motley Fool UK.

More reading

• Forget side hustles! This is how I’m building a second income from stocks

C Ruane has positions in Safestore Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., Safestore Plc, and Unilever. 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.

See author's posts