Investing in stocks and shares
The entire 2013/14 tax year Individual Savings Account (ISA) allowance of £11,520 can be invested into a stocks and shares ISA. There is a vast and ever increasing range of different investment options from which to choose, offering not only huge flexibility in how you invest but also access to the whole range of global stock and bond markets.
For the investor who knows what they want, Self-select ISAs offer the most flexible approach, allowing you to choose your own shares or collective investment funds. These schemes cover a range of asset classes and markets, so you can make up your own portfolio – or use your ISA allowance to target one specific investment to complement your wider portfolio. However, choosing your own shares can be a risky approach and, unless it forms part of a wider share portfolio, can concentrate your investment around the fortunes of just one or two companies. Many investors therefore choose to put their ISA allowance into something more diversified, such as a collective scheme or fund, which reduces risk by accessing a whole selection of shares for a relatively small investment.
There are many funds to choose from and some prioritise income and some capital growth. Over the long term, those with higher equity content have generally offered higher returns than equivalent investments in cash, bonds or commercial property.
However, equities can go down as well as up and have been volatile. Funds are grouped into categories to give you an indication of their aims. For example, the ‘Mixed Investment 20-60% shares’ category will have no more than 60% in shares. More aggressive funds may be found in, for example, the UK All Companies, UK Smaller Companies or Global Emerging Markets sectors.
If you need income from your ISA then you may wish to consider a fund that delivers regular dividend, rental or interest payments. The three main choices are equity income, commercial property or bonds. There are a number of funds that combine these asset classes together, thereby producing income from a more diversified portfolio.
Ultimately, the choices you make for your Isa have to reflect your aims and goals and sit within any wider portfolio you might hold. If you want to make sure you have covered all the options available, you can always seek professional advice.
Please also remember past performance is not a reliable indicator of future results.
For more information and advice contact Paul Hoskin at Hoskin Financial Planning.