Why investing £1,666 is a magic number for my Stocks & Shares ISA

We are now less than two months away from the last date of the annual Stocks and Shares ISA. In April, the allowance resets, meaning I then have the next year to invest up to £20k in an ISA. It is protected from capital gains tax and dividend tax. If I break my monthly target, I want to try and get to the stage where I can invest £1,666 a month to maximize my potential. Here’s how I tried to do this!

Manage my finances

First of all, I have to admit that I won’t come close to maxing out my £20k allowance for the current year. Even for the 2023/24 ISA year, I will struggle. But it’s all to try and build up to a level where I can hit this number at some point during the season.

The first way I can increase my investment amount has nothing to do with what I invest. It revolves around income and expenses. In the same way as a business, my income minus my monthly expenses results in withheld income or a deficit. So if I can cut costs or make a profit to increase my salary, I will make a profit if I have money left at the end of the month.

Dividend plan

Of course, that may seem like an oversimplification! If I can’t do the above, I can maximize my contribution now. One of the benefits of an ISA is that I don’t pay tax on dividends. So if I put new cash into income shares, I will receive a gross payment amount. I can then take this money and use it towards the goal of investing £20k.

For example, I invest £500 a month now. If I diverted all of this into income shares with an average return of 7%, I would earn around £420 a year. This naturally increases every year as I invest more. In the following years, I was able to reach the stage where I invested only £500 of my own fresh money, but made a profit of £1,100 from my long-term portfolio. I then took this £1,100, the club with new money and invested £1,600 for the month.

As a side note, dividend income received in an ISA does not count towards the £20k allowance. But that’s a good thing, because my ISA allowance could be bigger.

Forecasting future dividend payments is difficult. There’s a lot that can change further down the line that could mean my income isn’t what I want it to be. This can speed up my progress towards my goals.

Eyes on the long term

The bottom line for me is to focus on increasing your monthly investment amount. I will try and do this by cutting costs, as well as putting more money into dividend stocks. Although I won’t be able to reach the magic number of £1,666 in the near future, it is certainly a realistic goal that I can achieve.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it become, any form of tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.