Using an Isa wrapper means your money can grow without attracting any capital gains tax. Your profit can increase by 20% if you save this way.
The amount you can invest in an ISA has increased to £20.000 in recent years. This means you can put £20,000 into an Isa every year, all or part of which can be in an investment Isa – one that allows you to invest your money into stocks and shares, or other assets such as commercial property, commodities or bonds.
These details are, of course, subject to change and tax treatment depends upon your individual circumstances.
How to choose an investment ISA
It is important to remember that this is an investment rather than savings. The value of your investments can go down as well as up, so an investment Isa is not necessarily suitable if you are looking to put money away for a short time or need to access it quickly.
1. Term: if you are saving for five years or more, it may be worth considering investment ISA’s as part of the mix, with the aim to help your money keep pace with inflation. Past performance, however, should not be a guide to future performance. There are other options to save over a shorter term and GMP-Invest can help you understand these options.
2. Risk: As well as considering the term of your investment, it is also important to consider your risk tolerance. While investing money will always involve some risk, ensuring that you have a diverse portfolio of different types of assets such as shares, bonds will help protect you as different types of assets tend to perform differently at different points in the economic cycle. GPM-Invest offers a suitability questionnaire so you can understand which category you fall in to.
3. Regularity: You can consider a regular investment plan, where you put some money into your ISA every month. However, it is important that you don’t go over your annual tax allowance. GPM-Invest can help you choose the right option for you.
4. Lump sums: If you have a large lump sum to invest and have the time to watch it grow then GPM-Invest can help you understand if this is the right option for you.
5. Compounding: When considering when to start investing, don’t forget the power of compounding, which means that over time the returns that you’ve made from your investments generate their own returns if you reinvest them. GPM-Invest have some fantastic proven investments which can realise great returns. This means that the earlier you start, the more impact your investment will have.
Types of investments
There are many different types of investment you can hold in an Isa which can be very confusing. Beginner investors may be daunted by the amount of research required to pick stocks and create a diverse portfolio. The terminology can also be difficult to understand.
It can be easier to invest using funds, which allow you to pool your money with other investors to create a ready-made portfolio. There are many different types of funds too.
Some investors choose tracker funds or passive funds. These are low-cost options which simply follow the performance of a market (such as the FTSE 100). Your portfolio will perform in the same way as that market.
Other investors chose to have a manager who will invest your money in active funds. They will help you choose which stocks to buy or sell. The aim is to beat the performance of the market using their expertise. You’ll be able to see their past performance using the fund’s “factsheet”, which has performance statistics and shows the main assets held by the fund itself.
Some ISA’s allow you to invest in investment trusts, a type of fund traded on the stock exchange. Investment trusts are mostly well known for increasing their dividends which is usually in the form of cash pay-outs to shareholders year on year. Dividend pay-outs can be an important part of your total return on your investments. Not all companies pay them, but those that do usually distribute them quarterly, annually or biannually.
Important investment information.
Make sure you can afford to lock your money away for the required term.
Check you understand how often and what percentage your dividend will pay you.
As with all investments, the value of an investment in both funds and trusts can rise and fall and you may get back less money than you originally invested.
Ensuring that you have a properly diversified portfolio is important, so if you’re not sure of the best assets to fund your retirement. We recommend you contact GPM-Invest if you need assistance.