It is only a few weeks until the end of the current tax year, when one ISA year closes and another opens for investment. If you do not take up your entitlement to invest money in the ISA tax shelter each year, you lose it. In this post I highlight some factors to take into account when considering the investments you will hold in an ISA.
I am sometimes asked “When is the best time to invest in an ISA?” The ISA concept is a long-term investment, so my answer is “When money is available”, because over 10 or 20 years investing today or next month is of little consequence. In the portfolios we manage for clients it is a standard process to be taking up the annual entitlement from 6th April.
Beware the attraction of cash
Cash is probably now the only short-term safe haven, but it is not an investment. Gold is just speculation. In a blog post on 10th February, Fidelity International quoted their calculations that show that an investment of £15,000 into the FTSE 250 index held for 10 years from 31 January 2006 would have returned £35,455.49, an average of £2,045.5 a year. In contrast, £15,000 placed into the average UK savings account over the same period would have returned £16,076.25 or an average of £107.6 a year. That is a difference of £19,379.24, quite impressive and a strong percentage return.
Be cautious with past performance
We should all know the mantra “past performance is not necessarily a guide to future performance” because it is true. However, pedigree counts and a manager whose record shows that his fund has been consistently top quartile is more likely to repeat that in the future than a manager whose fund is regularly in the bottom quartile.
Volatility is not necessarily risk
The prices and values in stock markets change minute to minute and day to day. We are not day-traders and we recommend that investors take a longer-term view. Corrections over the course of a bull market are normal, but as the Fidelity statistics quoted above show, buy and hold works. Time in the market works better than timing the market.
Embrace spread of investment
The best protection against market uncertainty is diversification. A Stocks & Shares ISA allows you to spread your investments across a range of assets which are flexible enough to take good care of the cautious investor and allow the more adventurous investor to splash out a little. You define your investment objectives and your attitude to risk and an appropriate spread of investment will give you a personal, bespoke portfolio.
So What?
These are four very important factors to take into account, not only when planning your own investments, but also in your discussions with an investment manager.