The new tax year is well underway, giving savers and investors a fresh £20,000 annual allowance to put in an ISA. The ability to shelter wealth from the taxman makes ISAs a smart choice for most people.
But there are many ISAs to choose from, some big differences between them, and even bigger differences in the kind of returns you can enjoy.
At Continuum we are looking at ways to make your ISA work harder for you.
1. Choosing the most suitable type of ISA
There are actually six different ISAs. Cash ISAs, Stock and Shares ISAs, Innovative Finance ISAs, Lifetime ISAs and Junior ISAs, which can be Cash or Stocks and Shares.
Choosing the appropriate one for your needs is vital. If you are saving for a first home, the government bonus on the Lifetime ISA might make it a good choice. If you’re saving for your child a Junior ISA looks obvious.
But if you are looking at your own future, you need to think about at your time scales. Choose the security of a Cash ISA, and you might miss out of the long-term potential of investment in a Stocks and Shares ISA. Buy into stocks and shares for the short term, and you could lose if a downturn flattens the markets.
Uncertain which type of ISA to choose? Call us at Continuum.
2. Putting your money in promptly
You can technically use your annual ISA allowance up until the stroke of midnight on April 5th each year – at which point you lose it, and it is replaced by the next year’s allowance.
But waiting until the last minute may not be ideal. The sooner you invest—ideally from April 6th—the more time your money has to grow or earn interest. Starting early each tax year gives your savings the best chance to potentially benefit from compounding returns
3. Putting in enough – the easy way
Of course, many of us don’t have £20,000 to put into an ISA every year. But you want to take full advantage of your ISA entitlement. A possible solution? Paying in monthly by direct debit. This is a good discipline and easier on your cash flow. If you are investing, it has another big advantage, that of ironing out the effect of market ups and downs. When the market falls, your monthly money buys more assets.
4. Checking the costs
You may have fund and platform fees to pay with a Stocks and Shares ISA – which eat into your profits. Compare the costs of various providers, and make sure you’re not buying and selling investments too often. With most platforms each time you trade will cost you money.
5. Riding out the downturns
Stock markets will always have their ups and down. This can be scary, but remember, the losses are only on paper, unless you panic and sell. Cashing out too early could mean missing out on a market rally, while successful investors ride out the falls, remain focused on their goals and stay invested for when markets recover.
6. Diversifying. But not too much
With a Stocks and Shares ISA you need to diversify your investments. You don’t want all your money in the same type of company or region.
But you should not over-diversify. Holding dozens of different shares makes them hard to keep track of.
How much diversification is appropriate? Discuss your investment strategy with a Continuum expert. And consider investing in a managed fund, where diversification is arranged for you.
7. Watching the news
World events and new opportunities can affect your Stocks and Shares ISA. But there’s no need for constant changes to your portfolio in response to short-term market noise. Your ISA should be built around your long-term goals and making small changes every time the market moves often could do more harm than good.
8. Checking your portfolio
It’s true that the best results tend to come from sticking to a plan rather than trying to time ups and downs. But check your portfolio. Some holdings may be underperforming. You need to know which and make changes to get back on track.
9. Calling us at Continuum
Growing wealth is never just a matter of luck. You need a strategy, a plan based on your resources and needs that can show you how and where you need to put your money to make the most of it.
At Continuum we can work with you to help you build a strategy that is appropriate 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.
When investing, your capital may be at risk. The value of investments can go down as well as up and you may not get back the full amount invested.
The Financial Conduct Authority does not regulate taxation advice.
Stocks and Shares ISAs do not include the same security of capital which is afforded with a deposit account.
Investors in ISA’s do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
Innovative finance ISAs are not protected by the Financial Services Compensation Scheme (FSCS).
