Investing your Isa: what the experts think
Isafication
The clock is ticking down to 5 April, the deadline to invest this year’s bumper new £20,000 tax-free individual savings allowance, said Anne Ashworth in The Times. Thanks to the “Isafication mania” that has gripped the Treasury recently, “shortage of choice will not be an issue”. There is “a scheme for every taste”: including the Innovative Isa for the adventurous and the Lifetime Isa for millennials. The most popular, to the frustration of many professionals, remains the cash Isa. Surveys comparing the longterm performance of cash vs. stocks and shares have become “a rite of spring” – and the latter always win. But if you’re set on “a quiet life”, or just want to park this year’s allowance while you await investment inspiration, Leeds Building Society and Tesco Bank are offering 1.21% and 1.16% respectively.
Lumps versus drips
The Isa deadline has traditionally meant “a last-minute sprint” to invest a lump sum, said Kate Beioley in the FT. But drip-feeding money into an Isa over time, usually monthly or quarterly, is often a better bet. “It takes the emotion out of investing and means you do not have to worry about timing the market” – something that “might chime with investors” after this year’s volatile start. By drip-feeding, you take advantage of downs as well as ups, a process known as “pound cost averaging”. Buying into the market when it’s cheap means potential for greater profits when values rise.
Avoiding fads
For some punters, “stock-picking is the fun part of investing”, said James Norrington in Investors Chronicle. But for “the longterm wealth builder”, the “less glamorous process of asset allocation” is the most important: finding the right mix of investments to both deliver growth and protect you from the worst market squalls. “Many investors take an ad hoc approach to their Isa each year and end up with a random collection of funds,” Jason Hollands of the Tilney Group told the FT. The key is to decide on a suitable model – a ratio of UK and foreign equities, property and so on that matches your risk appetite – and then stick with it. It means you’ll end up with a deliberately structured portfolio within your Isa wrapper, rather than a handful of fad funds.