April 6thย and the new tax year is now upon us, and with it of course comes a new ISA allowance.
At Continuum we believe that ISAs can be the basis of wealth creation for most people. Understanding the potential they have to help you reach your financial goals is essential.
What is an ISA investment?
An ISA is Individual Savings Account, and a tax-efficient way to save or invest because any growth your money makes inside the wrapper of an ISA is free from the attentions of the taxman. There should be no income tax to pay on the money you earn from an ISA, no dividend tax to pay as your money grows, and no capital gains tax when you finally come to sell your investment. It means that your money has the potential to grow faster, and it means that you get to enjoy all the profits you make on it, rather than sharing with the taxman.
ISAs can help the everyday investor build long term wealth, provide an income, buy a first home or boost retirement.
Cash ISAs offer predictable returns on cash savings. Stock and Share ISAs are for investors. Your money is used to buy investments, which can include equities โ shares in companies โ bonds and even things such as commercial property. They mean a certain level of risk โ as with any investment there are no guarantees โ but they can offer the potential for greater returns over the long to medium term.
There can be no guarantees that you will make money by investing in a stocks and shares ISA. However if you invest across a range of investments and stay invested for a number of years, there is a high probability that you will have made money on at least some of those assets. You should be able to earn more than you would through a savings account or even a Cash ISA.
So here are our tips for successful ISA investing:
- Invest in your ISA for the long term. Volatility is part of every stock market, and the price of the stocks you hold can fall as well as rise. If you donโt sell, the loss hasnโt been โcrystallisedโ. If you leave your lump sum invested, your investment account can start to recover, so donโt panic if things go south over a short timeframe. Over a long enough time frame โ 5 years or more โ there are excellent prospects for healthy growth.
- Spread your risks. The old wisdom of not putting all your eggs in one basket is key to investment success. Diversify โ which means investing across many different asset classes. You reduce the risk of loss because when one investment moves down, another might be moving up. You might want to concentrate your investment in a market or a sector that you are familiar with and believe will offer the best performance โ but you should still spread your money around.
- Watch the cost. Unlike a Cash ISA, which may be free of charges there are costs involved with a Stocks and Shares ISAs. Platform fees, fund management charges, fees for making changes to your portfolio. These can be a flat fee or a percentage of the amount in your portfolio. They vary between providers, but the thing to remember is the higher the fee, the less of your money goes into building your wealth. You need to keep a close eye on the fees you pay. You might want to consider a passive tracker fund where instead of a fund employing a manager looking to pick shares to beat the market. the returns simply mimic the performance of a stock market index.
- Get some expert help. There are hundreds of Stocks and Shares ISAs available, from those designed to minimise risk to those that are frankly speculative, and from those that track entire markets to those that specialise in a particular sector. Finding the ISA that is appropriate for you can either involve months of research and probably some anxiety, or a call to us at Continuum, where our experts can help you find the Stocks and Shares ISA that is most suitable for you.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Stocks and Shares ISAs do not include the same security of capital which is afforded with a deposit account.
The Financial Conduct Authority does not regulate taxation advice and deposit accounts.
