UK dash to invest in Isas
BRITONS are rushing to invest in stocks and shares Isas, amid growing confidence that markets will rebound this year as vaccines roll out and lockdowns are eased.
Many people are preparing to take on more risk by investing in the stock market, rather than put up with a near-zero return on cash Isas.
Experts say stock markets can provide a superior return in the longer run, but warn against short-term volatility as the global economy struggles to shrug off Covid-19.
Sales of stocks and shares Isas surged by a third in January, compared to last year, according to research from Scottish Friendly, whose savings specialist Kevin Brown said: “Interest has spiked and we expect the increased demand will continue.”
Investors have less than two months to use their Isa allowance for the 2020/21 tax year, before the 5 April deadline.
This year UK adults can invest up to £20,000 in a stocks and shares Isa or a cash Isa. Younger savers can claim a 25 per cent government top-up worth up to £1,000, by investing up to £4,000 in a Lifetime Isa.
Families can also invest on behalf of children and grandchildren in a Junior Isa, up to £9,000 this year.
Many will be keen to safeguard this year’s Isa allowances, while being reluctant to put large lump sums into today’s volatile stock market.
Fund Calibre managing director Darius McDermott said: “You can park your money in an Isa to secure this year’s allowance, then drip feed it into shares and funds over the months that follow.”
Many Isa investors are targeting stocks that have been hit hard by the pandemic, hoping they will rebound strongly, figures from Interactive Investor suggest. Stricken airlines stocks were top targets, including British Airways owner International Consolidated Airlines Group, as was aircraft engine maker Rolls-Royce.
However, individual stocks will be too risky for most people, who should consider spreading their money between a range of companies, using an investment fund or trust.
Fundsmith Equity and Scottish Mortgage remain popular, as they invest largely in the US where market growth has been driven by the success of technology companies such as Amazon, Apple, Microsoft and Tesla.
Other popular funds and trusts include Edinburgh Worldwide, Baillie Gifford’s China, Allianz Technology, the Vanguard LifeStrategy range of low-cost tracker funds and Premier Miton UK Smaller Companies.
However, Interactive Investor’s fund analyst Teodor Dilov said do not ignore the UK, despite recent underperformance: “With Brexit out of the way, the UK could provide diversification and potential recovery opportunities in 2021.”
AJ Bell investment director Russ Mould said global stock markets have been on a bull run since just after the financial crisis in 2009, but this cannot last forever: “The tricky bit is no one can tell what will bring it to an end or when.”
To protect yourself, never invest money that you are likely to need in the next five years, and diversify between different shares and funds.