This is a common question that many ask when it comes to finance.⁣ The answer is it depends... because its biased on your objectives.⁣⁣

So really, as much as I want it to be a straight answer; it isn't - but here's something super useful to help you decide

And really the answer comes back to our strategy in the first place

Most dentists out there that are investing use a “Buy and Hold” strategy.⁣ The idea is that we invest money early doors then play the long game and take profits later in life (retirement). In which case, the whole idea is that we want our portfolio to compound.

Einstein called compounding "the 8th wonder of the world" for a reason

Compounding is the premise that certain things grow exponentially faster with time rather than linearly.⁣ Providing we don't interfere

The sooner and greater a rate that our portfolio compounds at is the faster we reach financial freedom.⁣ I'm talking shaving years or even decades off retirement.

Remember: every £ we withdraw prematurely is one less £ that can compound

Therefore, IF you use your ISA for “passive income” in the early days you are withdrawing and spending the £s that would otherwise be 📈... Effectively you are INHIBITING your portfolios ability to compound.⁣

The stock market is often quoted to return 10% per annum. BUT what they dont tell you is that 3-4% of these returns are comprised of dividends and the other 6-7% is the growth in value of the stocks

Most are tempted to siphon off the 3-4% dividends as their passive income. They would then accept the 6-7% remaining growth as their returns

Look at the above chart closely. Can you see how much a £10k investment is returning on a 10% return vs a 6% return after 40 years...?

10k invested at 10% return over 40 years generates a close to £450k (kind of whopping). A 6% return achieves £100k after 40 years.

So, siphoning off that 4% actually cost us £350k in the fullness of time. What hurts more is we wouldnt have had nearly as much as that number in terms of passive income to spend over the years when doing this.

Not really a great idea as you can see in this example

Where it can make total sense to take passive income out of your investing accounts is when you already have a significant pot of money built up.

Say for example you have a dental practice exit and want to live a little. OR have a big pension ready to go at 57 and need your ISA to retire a little earlier and tie you over a few years to get there.

All worth having a conversation on when the time is right

So the answer to the question "Can I Invest In My ISA For Passive Income?" is this:⁣

YES – but make sure you know the implications and are informed :)

Summary:

✅ Passive income from an ISA/Investing account inhibits compounding in the early stages of your investing career

✅ Passive income from your investing accounts works very well

✅ Small losses in compounding early doors make big alterations to portfolio size later in life

Of course there's more to it than this - you need a proper portfolio to be able to achieve this level of returns... we demonstrate how to do that in detail in our Dentists Who Invest Academy™. Doors have just closed on our recent intake but it will be open again at some stage over the coming months

Or if you already have a pot of wealth and want to know if its possible to be able to generate some passive income from this sooner.

Stay smart out there 🧠

Best Wishes

Dr. James Martin

*Not Financial Advice⁣⁣⁣