Last-minute Isa tips
If you are still unsure how to invest this year’s Isa allowance or which type of Isa to take out, it’s time to make your mind up.
At 11.59pm on Tuesday 5 April, the door will shut once again and any subsequent deposits will count towards your 2016/17 allocation.
Options for last-minute stocks and shares Isa investors are very flexible, as most Isa providers have a cash facility, typically called something like cash reserve.
Once your money is in the Isa cash facility, it can remain there until you’ve decided how to invest it, but it won’t make a return until you do.
Given that the annual individual savings account (Isa) limit is £15,240, rather than throwing a large lump sum into the market, you are better off drip-feeding money in on a monthly basis; this way, you are limiting the impact of any market falls on your capital.
Here are some ideas for your stocks and shares Isa:
If you would prefer to take a cautious approach and do not want all of your money going into shares, Gavin Haynes, managing director at Whitechurch Securities, highlights the £9.1 billion Newton Real Return fund as “a good defensive holding for a first-time investor”.
The fund is managed by Iain Stewart, who aims to beat cash returns by 4% a year on a rolling, three-year basis.
The fund is diversified across different asset classes, including cash and international bonds, as well as some shares. It comes with an ongoing annual charge of 1.04%.
Mr Haynes says: “Iain Stewart is a proven and effective asset allocator who is supported by strong resources and has demonstrated good use of a wide range of strategies to enhance returns and control risk.”
Tracker equity funds
If you haven’t made any investments before and prefer to stick with domestic UK companies, start with HSBC FTSE All Share index fund for low-cost exposure to UK equities. This aims to replicate the index of all companies listed on the main market of the London Stock Exchange.
If you prefer to invest on a global basis, Fidelity Index World is a good low-cost option. Given its worldwide remit, the fund has investments in some of the planet’s biggest household names, including technology giants Apple and Microsoft. It has very low annual ongoing charges of 0.15% and gives good diversification across different equity markets worldwide.
If you already have a tracker based on British stocks, then it may be worth finding a global tracker that excludes them so you don’t double up.
Vanguard FTSE Developed World ex-UK Equity Index fund is a cheap option, with an ongoing charge of 0.15%.
Active equity funds
Among actively managed funds, which are run by professional fund managers who aim to beat stock market performance, Mr Haynes picks CF Woodford Equity Income fund as a good option for novice investors. This fund gives exposure to UK equities and is run by one of the UK’s most celebrated investors, Neil Woodford.
He aims to deliver income as well as capital growth by investing in dividend paying UK firms such as profit-sharing corporations. His approach is defensive in nature as the companies in which he invests typically possess very strong balance sheets. The fund’s annual charge can be as low as 0.75%.
You can spread risks further by selecting a global equity fund which will invest in companies listed around the world. Fundsmith Equity fund is a good choice for investors looking for extra diversification. Managed by Terry Smith, his approach is to be a long- term investor, not a short-term trader.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
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.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
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.