With the end of the tax year fast approaching, it’s important to make sure you use up as much of your tax-free £20,000 individual savings account allowance as possible, says Mary McDougall in Chronicle of Investors. But deciding how and where to invest is seldom easy, and with “inflation, war and volatility being the dominant themes in markets right now”, the outlook this year is even more uncertain.
Stocks vs Cash
“Put your money in stocks” is the message you will hear, John Stepek continued Moneyweek.com. Given “pathetic” savings rates (interest rates on cash Isas are mostly below 1%), it makes sense when you can lock up your money for long — history shows that stocks have delivered better returns than any other asset class. “But there’s a lot to unpack in that idea of ’long term’.” If you can’t put your money aside for at least five years, investing in stocks means “taking a significant risk that your money won’t even grow in nominal terms, let alone ‘real’ “. With cash, you at least get back what you invested – even if you don’t buy that much with it. Another, perhaps more important, point is that stocks, by and large, don’t like inflation either. And as for bonds…
A new pair of fangs
The answer could be a “multi-asset” fund made up of a mix of assets — stocks, bonds, cash, and alternative assets like infrastructure, real estate, or gold — “each of which behaves differently during the ups and downs of the market said Holly Thomas in The Sunday Times. They’re more expensive than other actively managed funds, but, as Caliber’s Darius McDermott points out, “it’s performance after fees that counts the most.” Eligible funds include BNY Mellon Multi-Asset Balance, Threadneedle Managed Equity & Bond, Rathbone Strategic Growth and Fidelity Multi-Asset. Another strategy, Merryn Somerset told Webb in the financial times, aims to target “long neglected” sectors that are now “coming back into fashion”. Merrill Lynch recently suggested that we “redefine the Faangs” (i.e. Facebook, Amazon, Apple, Netflix, Google et al.) so that the letters for “fuels, aerospace, agriculture, nuclear and renewable energy, and gold.” /Metals and Minerals”. All have developed well this year and should continue to do so in the medium term.
There are now seven different styles of Isa to choose from, Elizabeth Anderson said in The Sunday Times. You are not limited to choosing just one, but the £20,000 cap applies to all your Isa’s.
- Best for short-term savings goals as interest paid is well below inflation rate.
Stocks and shares Isa
- Best for long-term savings. Ups and downs in the markets should be balanced out over the long term.
- Best for those willing to take a higher risk. Majors on peer to peer lending. It is difficult to withdraw investments in the short term and is not covered by the Financial Services Compensation Scheme.
- Best for first time buyers or those looking for a retirement alternative. Savers can pay up to £4,000 each year and the Government is adding a 25% bonus. Lisas can be used to buy a first home worth up to £450,000.
Help buying Isa’s
- Best for first time buyers. Also benefits from a government bonus. Now closed to new applicants.
- Most suitable for investors looking to reduce inheritance tax. However, as it focuses on the alternative investment market in London, the risk is higher.
- Best for under 18s. You can invest up to £9,000 a year in a Jisa on behalf of your children – there are both money and investment opportunities.
https://www.theweek.co.uk/business/personal-finance/956189/isa-strategies-types-what-the-experts-think Isa Strategies and Isa Types: What the Experts Think