6th April 2018 at 8:50am
As the new tax year begins, it’s a great time to take a fresh look at your savings and investments and start making the most of your new tax-free allowances, such as an ISA.
ISAs offer really generous tax benefits. As well as your yearly allowance (£20,000 in the 2018/19 tax year), any investment growth or interest earned within an ISA is free of tax. So it’s well worth saving or investing as much as you can afford. And because the new tax year has just begun, you can start to make the most of your 2018/19 ISA allowance immediately – either by making a lump sum payment or investing each month.
Why a stocks and shares ISA rather than a cash ISA?
Generally, you’ll get better long-term returns from a stocks and shares ISA as your money is invested. This is particularly true at times when interest rates are low like they have been in recent years. So if you’re prepared to keep your money invested, ideally for at least five years, then this could be a good option for you.
However, you’ll need to remember that there aren’t any guarantees with investing – the value of investments can go down as well as up, and you may get back less than you paid in. So if you’re not prepared to take any risk with your money, then you’re probably better choosing a cash ISA.
Where can you invest your money?
Different stocks and shares ISAs offer different investment options, so it’s worth shopping around to find the best one for you. Funds are the most common type of ISA investment, but some ISAs also let you invest direct in stocks and shares, and bonds.
Tips to help you choose the best investments for you
- Think about how much risk you’re prepared to take
The more risk you take, the more potential you have for higher returns. But on the flip side, there’s more possibility that the value of your investments will go down, particularly in volatile markets. Thinking about when and how you’re planning to use money from your ISA in the future may help you decide how much risk you’re happy taking. In turn, this can help narrow down your choices
- Consider ‘ready-made’ funds
These usually include a mix of investment types and are designed to take the hard work out of investing. The good news is experts will manage them on your behalf. So if you’re new to investing or want to save time choosing your own funds, then this could be a good option for you
- Think carefully before following the herd or going for the latest trend
You might see certain funds mentioned a lot in the press or on social media. That doesn’t mean they’re necessarily the best choice for you. Look carefully at your options and make sure that what you choose to invest in, is aligned to what you’re saving into your ISA for and how you feel about risk
- See what the experts are saying
Many investment companies have teams which analyse markets and give their views on the outlooks for different types of investments. Aberdeen Standard Investments’ Head of Global Strategy, Andrew Milligan, gives us a snapshot of this every month in his Market View. Aberdeen Standard Investments also regularly publishes a ‘house view’, which gives their more detailed views
- Use your ISA’s cash account
Even if you’re not sure where to invest, you can still put money into your stocks and shares ISA. Most stocks and shares ISAs have a cash account, so you can keep your money there until you’ve decided where to invest it.
So start making the most of your tax free ISA allowance today and get on track for the future you want.
The information in this blog should not be regarded as financial advice. Please remember that the value of your investment can go down as well as up and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in April 2018. Personal circumstances also have an impact on tax treatment.