Put yourself in control with a self-select ISA
If you're comfortable picking your own investments you can avoid relying on a fund manager to run your Isa for you by opting for a 'self-select Isa'. This way, you fill up your tax-efficient Isa 'wrapper' with whatever investments take your fancy, rather than relying on professional guidance.
Self-select Isas can hold stocks, unit and investment trusts, exchange-traded funds, gilts and some bonds, and you take control of your investment portfolio, buying and selling when you want. You can choose where to open one from the growing number of 'fund supermarkets' or 'platforms' that are currently battling to cut costs ahead of an April deadline to make charges transparent.
There is a range of tools on offer at these investment websites to help you pick the right funds for your situation. The cost of investing in this way is typically cheaper than city-based stockbrokers, as you are not taking advice and paying for this as part of the service.
Consider the cost
However, the amount you pay will depend on the sum you have to invest, and the underlying investments you pick. There may be different charges for say, shares, and unit and investment trusts, alongside administration costs and charges each time you buy and sell.
On a £10,000 portfolio consisting of five investment funds, held for 10 years, the website Candid Money reckons an investor would end up with about £32,000 on a cheap platform, compared with £30,500 at a more costly rival, so it pays to consider cost carefully.
Accounts are available from Interactive Investor, Bestinvest, Hargreaves Lansdown, Charles Stanley, and Alliance Trust Savings, among many others. Some charge a flat fee, while others impose a percentage cost of your portfolio. So consider carefully how you plan to use the account and also any additional tools you might like to help pick and manage your investments.
Self-select Isas are useful if you want a wide range of investment choices, and if you want to hold investment trusts and stocks you may be forced to go down this route. There may also be other fees to pay too, depending on what investments you 'self-select'.
For example, if you decide to trade shares inside your Isa, you'll face dealing costs of typically around £10 depending on the size of your shares purchase or sale. This could reduce, depending on how often you trade (frequent traders sometimes pay less per trade).
It's possible to transfer shares and other investments you already own from, say, past utility company or bank privatisations, into a self-select Isa. However, make sure those types of investment are accepted by the provider you go with, and remember they will count as part of your Isa allowance.
Self-select Isas are not for everyone. They won't be the best route, for example, for people who take no interest in their investments and just want a more profitable home for their cash than a standard savings account.
You have to be prepared to put time and energy into running your own portfolio, not just in selecting the investments you want but also in keeping track of company news, results and performance for your existing holdings, and in looking around for new opportunities.
Compare fund supermarkets, using your portfolio, at comparefundplatforms.com or monevator.com.
Sometimes known as a trading ISA, a self-select ISA gives investors full control over which assets to include in their ISA, allowing them to choose individual shares and bonds rather than investment funds. Aimed mainly at experienced investors and subject to the same investment limits of a regular ISA, a self-select ISA will usually be managed by a stockbroker on an investor’s behalf.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.