Before deciding to invest in a new ISA contract, there are a number of things you need to think about.
1. Choose the right type of ISA
Choose your ISA to reflect your aims. Savers, and those who are likely to need access to their capital in the short term should stick to Cash ISA’s. However, longer term investments are likely to offer higher returns, although they come with a higher risk. Therefore, those who can afford to take a long-term view could consider a Stocks & Shares ISA. Those who like to spread their risk will put part of their allowance in a Cash ISA and part in a Stocks and Shares ISA.
2. Use your ISA allowance early
Opening your ISA near the start of the tax year means it has a whole extra year to grow, compared to leaving it to the last minute. Over the long term this can have a big effect on your returns.
If you had used the full ISA allowance each year over the last decade you would have sheltered a total of £84,560 from tax.
If you had invested your ISA allowance religiously at the start of each tax year into an average performing UK equity fund, your ISA portfolio would now be worth £132,068 – a tax free profit of £47,508. However, if you left making your ISA subscriptions until the last day of each tax year, your ISA’s would instead be worth £118,670, or £13,398 less. This is a big difference, more than an entire years ISA allowance.
Early bird investors have effectively received an extra years ISA allowance in profit, though past performance is not a guide to future returns. All stock market investments go down in value as well as up so you could get back less than you invested.
This tax year the ISA allowance has risen to £11,520, so you can shelter more capital then ever from the tax man.
3. Control your risk
You must only invest into areas that you feel comfortable with. There is no point taking high degrees of risk to try and maximise your growth potential if you are going to lose sleep at night worrying about what might happen if the markets fell. You should take time evaluating your strategy before making your final decision.
We will guide you through a process that will help you find the investment level that you feel happy with.
Having the flexibility to change your investment strategy is just as important, and we can help to make sure that any investments made are flexible enough to change with you.
After all, you may not want to take the same level of risk in 10 years time, or your priorities may have changed.
Holding a range of investments within an ISA is key to managing risk. Within a Stocks & Shares ISA you can choose to invest in a bespoke portfolio of funds that hold Shares, Commercial Property, Corporate Bonds and Gilts, so you can take as much or as little risk as you like. Investing into a bespoke portfolio of funds is a popular choice for ISA’s as they typically invest in a broad spread off different investments, spreading your risk. The manager of the individual funds within the portfolio will make all the day to day investment decisions on your behalf. Therefore choosing the right managers is vital.
5. Time in the market
If you choose to invest into a Stocks and Shares ISA, you must remember that these are not short term savings accounts. You should only consider this option if you have at least 5 years to invest over.
A successful investor is often the one who is not forced to sell an investment when values are at a low point, but can remain invested until an opportune time to sell.
6. Invest with the best
Our investment committee meet on a regular basis to review and examine the performance and continued suitability of the Red IFA investment portfolios.
With the help and input from some of the UK’s leading fund houses, we build bespoke model portfolios for our clients to utilise.
7. Review regularly
We suggest reviewing your ISA investment at least once a year and we make this easy by providing you with all the information you will need.
We will sit with you and review your requirements. We will discuss your risk strategy to make sure that your ISA is still the most suitable investment for you.
You can make changes to your ISA if you wish, increasing or decreasing the level of risk you take, as well as making sure that you fully utilise this valuable tax efficient opportunity.