Low rates may signal the time to switch to a stocks and shares Isa

A YEAR ago, cash Isas were a safe port in the storm. But now interest rates are half what they were, while stock market volatility has subsided. So could this be the time to take the plunge and switch an Isa from cash to stocks and shares?

You can hedge your bets and pay into both a cash and stocks and shares Isa in the same tax year as long as you don’t exceed your total £20,000 annual allowance.

You can also move money between cash and investment Isas – you approach the new provider and it arranges the transfer.

To get started, buying into just one investment fund can be a sound move if you are starting small.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: ‘Buying into a single, welldiversified fund is a sensible first step for Isa investors with small sums. Typically, people will choose an investment fund that tracks an index such as the FTSE100, while others will choose a multi-asset fund invested across equities, bonds and property.’

Investors often think they need to constantly fine tune their investments to respond to ever-changing market conditions. But doing nothing is often the best option.

James Norton is senior investment planner at Vanguard. He cites a six-year study published in 1999 by Professors Barber and Odean, which found that investors who made the least trades – often women – achieved annual returns of 18.5 per cent compared with 11.5 per cent for those who traded most.

Coles adds: ‘Over-trading can be an expensive mistake. It’s tempting to keep adjusting at the margins of your portfolio, but you will pay for constant tweaks with higher trading costs and you can miss out on the long-term growth potential of your investments.’

If you want to dip your toe in the Isa investment waters, some wealth platforms will let you start investing with as little as £1 or £10 a month if you set up a direct debit.