0-20

You are a very low-risk investor and should consider a cash ISA.

You fall into this category because you chose the most conservative answers for more than half of the questions.

There are a number of very sound reasons for choosing cash, however. You may, for example, only have a short period over which to invest. Gavin Haynes, managing director of Whitechurch Securities, says: “If you can’t commit to five years or more, cash is going to be your best option – other assets may be too volatile.”

Alternatively, you may need to establish an emergency fund. Before embarking on more advanced investments, you need to have a few months’ worth of expenses saved up in case of any unexpected outgoings. Cash is the only suitable asset for this, as you never know when you might need access to your money.

Again, some people may just not be able to face the thought of losing money, even in the short term. Mark Dampier, head of funds research at Hargreaves Lansdown, says: “It often simply comes down to whether you can sleep at night.”

However, there is a price to pay for conservatism. If you opt for cash, you need to be prepared for the fact that returns are going to be disappointing. In fact, some high street banks are currently offering just 1% on cash ISAs.

Think about your investment targets: do you need to set aside more money or, if your time-horizon allows, do you need to consider taking a little more risk?

You also need to think about the longer term. Equities may have had a spectacularly bad couple of years, but they tend to outperform cash savings over the long term. There are exceptions to the rule, of course, but the vast majority of

10-year periods over the last 50 years have seen equities beat cash hands down. So you should at least be aware of the potential you could be missing out on if you decide to stick with cash and ignore equities.

Then there’s inflation. It’s not an immediate concern, but when it returns, cash will struggle to make significant gains. As Gavin Haynes says: “Cash is not a risk-free asset in times of inflation.”

If you do opt for cash, it’s worth finding the best available rate. You should also think about consistency. According to Moneyfacts, the most consistent cash ISAs over the last 18 months have been Egg, Principality Building Society and Kent Reliance Building Society. Those that have been most consistent for the last three years are Kent Reliance Building Society, Tipton & Coseley Building Society and Yorkshire Building Society.

25-45

You are a low-to-medium risk investor and should consider a mix of cash, shares, bonds and other assets in your ISA.

You may have fallen into this category because you gave the middle-of-the-road answer every time, in which case you need a balanced portfolio and you’re in the right place. However, it may also be because you have conflicting attitudes towards risk – for example, you may have a long time horizon and be looking for a good return but have concerns about risk generally.

If this is the case, before you start assembling a portfolio, you should ask yourself some questions to determine where you need to compromise. Think about whether you really need such a large return. Can you afford to put more investment in and accept a smaller return? If so, you can compromise on return and opt for a cash ISA. If not, you may have to compromise on the risk you are willing to take and use equities, bonds or other assets.

Low-to-medium risk investors need to think about mixing asset classes like this to suit the level of risk they can handle. A useful way to build a mix of assets is with funds that already embody them. Haynes says: “Cautious managed funds offer a balance of equities alongside other assets, including cash and bonds.” He favours the Gartmore Cautious Managed and Investec Cautious Managed funds.

Another style of fund that includes a mix is the absolute return fund. These funds are designed to give positive returns in any market, and although they don’t always achieve this, they can control volatility if they are well run. Haynes picks out the Cazenove UK Absolute Target fund.

Alternatively, Hugo Shaw, business manager for Bestinvest, suggests you look at a multi-asset fund, some of which are funds of funds. These tend to have higher charges but can deliver diversity. According to Morningstar, the best-performing cautious managed fund of funds over three years has been the CF Arch Cru income fund, followed by the Cazenove Multi Manager Diversity fund and the M&G Cautious Managed fund. However, it’s worth bearing in mind that these are not guaranteed to be the best going forward.

If you want a more bespoke mix, you can get an ISA with a fund supermarket provider such as Cofunds, Interactive Investor, or Vantage from Hargreaves Lansdown. These will allow you to spread your investments across a selection of funds. So, you could pick a bond fund, an equity fund and alternative assets such as an absolute return or commercial property fund (although the experts are not currently recommending commercial property). You can separately invest part of your asset allocation in cash, and mix and match the proportions depending on what suits you.

If you take this approach, risk won’t be your only concern. Ashley Clark, director of needanadviser.com, says: “You also need to consider the economic cycle. You don’t want to put a lump sum into an asset which is overpriced or forecast to have a particularly bad time. At the very least, you should drip-feed money into these assets over time, to average out the price you pay, but ideally, you should do some research into which assets are performing well.”

50-75

You are a confident investor and should consider an equity ISA.

You have fallen into this category because you gave middle-of-the-road answers to most of the questions, but some of your answers also indicated a willingness, ability or need to take on more risk. Before you invest, you should look at any question you answered A or B to and consider where your priorities lie – if, for example, you only have a short period over which to invest, equities are unlikely to be the right choice.

However, once you’re happy that equities are the best approach for you, you need to start out by building a core equity portfolio. Gavin Haynes recommends that this should consist of a mixture of UK and global funds. In the current market, he sees much of the growth potential lying in dividends, so he favours equity income funds, such as the Artemis, Invesco and Jupiter funds. Globally, he likes the look of Newton Global Higher Income.

Bestinvest has a model portfolio for a medium-risk growth investor, which taps into income funds, with Fidelity Moneybuilder Income, Artemis Income and Cazenove UK Growth & Income. The model also suggests taking smaller stakes in recovery plays such as AXA Framlington UK Select Opportunities, Blackrock UK Dynamic and M&G Recovery. It looks overseas too, with Cazenove European.

Any portfolio will need balance; it shouldn’t be entirely made up of equities. “You need to reduce the risk by diversifying over a number of asset classes, including corporate and government bonds,” advises Haynes.

If you don’t already have cash savings and a bond holding elsewhere, you will also need to build them into your ISA choice this year. Haynes likes the M&G strategic Corporate Bond fund and Standard Life AAA Income. The Bestinvest portfolio, meanwhile, also includes large stakes in Invesco Perpetual Corporate Bond, Royal London Corporate Bond and Artemis Strategic Bond.

This portfolio, of course, must be tailored to your own specific needs.

80-90

You are a high-risk, experienced investor, who can look for more volatile opportunities within equity ISAs.

You have ended up in this category because you already have a diversified portfolio, are investing for the long term and have an appetite for risk. This means you’re likely to be prepared to take some gambles with your ISA allowance because you have sufficient investments and a safety net elsewhere in your portfolio to fall back on. So your ISA may include more speculative funds, investing in areas with tremendous prospects for growth but with the risk of great volatility – for example, in emerging markets.

Haynes says: “If you have the risk appetite, the falls in emerging markets in the last 12 months mean that now is a good time to invest and potentially to benefit from superior long-term growth. We have seen from the last 12 months that these markets tend to be more volatile, but there remains great growth potential in areas such as China, Russia and across the emerging markets.”

He rates the Lazard Global Emerging Markets fund.

Haynes also thinks it may be worth looking at commodity funds for a similarly volatile, speculative investment. “Commodities have been hit very hard, but it’s widely believed we will continue to see emerging markets grow in the future, so demand for raw materials and natural resources will re-emerge.” He suggests the JP Morgan Natural Resources fund as a good investment.

Hugo Shaw says there may well be room for themed investments too, such as a technology or environmental fund, “where a tighter investment universe concentrates risk and opportunity”.

Shaw adds: “Perversely, a high-risk fund can bring down total portfolio risk because, if it’s highly specialised, it may move differently from the rest ofw the portfolio and provide a counterbalance. So, for example, over the last 12 months, technology funds haven’t performed too badly compared with most other sectors.”

Beyond the realm of funds, you could also consider buying a self-select ISA and using it to buy specific stocks. This concentrates the risk even further, but is a useful option for those who regard their ISA allowance as a relatively small part of their portfolio.