"Where we're putting our Isa money in 2017"
“I’m reducing my risk” Moira O’Neill, editor
As an investor, I’d like to think I’m optimistic about the long term. Otherwise, why would I invest? But given the unpredictable global and domestic political situations, I’m feeling quite pessimistic about the immediate future, so I want to cut the risk in my investment portfolio. I am, therefore, going to split my allowance between two defensive funds.
The first is a niche fund that could help me weather 2017’s potentially stormy markets, First
State Global Listed Infrastructure. Infrastructure is perceived by many to be a defensive sector, where mature businesses offer steady and reliable income that often has inflationary pricing linked in.
The second choice is a strong ‘goalkeeper’, in the form of Sebastian Lyon’s Personal Assets Trust. This trust aims to protect and increase shareholders’ funds over the long term by investing in equities, fixed-income securities, cash and cash equivalents (which may include gold).
“I’m keen to get on the property ladder” Helen Knapman, deputy editor
I took out a Halifax Help to Buy Isa account as soon as they launched in December 2015; I knew the product would be popular as it was paying a marketleading interest rate at the time, and I didn’t want to miss out.
The interest rate was cut in December 2016 from 4% to 3.5% but this is still the best rate on offer, so there’s no point me transferring my cash to another
Help to Buy Isa elsewhere. With Help to Buy Isas, the government contributes £1 towards your deposit for each £4 you save, up to a maximum contribution of £3,000 on savings of £12,000.
As I’m keen to get on to the property ladder, this is still the best type of Isa for me at present, and I’ll continue to pay into the account on a monthly basis until I buy a property – which will hopefully be this year.
“I’m investing in Junior Isas” Rachel Lacey, special projects editor
This year, we are maintaining our holding of Rathbone Global Opportunities for our two sons’ Junior Isas. We aren’t investing huge sums for our sons every month, but as we hope this money will go towards big ticket expenses such as buying their first home or going to university, we want it to work as hard as it can.
We chose this fund because it was one of the first funds I selected when I began investing, and in that time it has served us well. In the past five years alone, it is up by 107%. The fund’s aim is to provide long-term growth from a global portfolio of ‘under the radar’ growth companies, and manager James Thomson feels like a safe pair of hands for our children’s savings.
The fund is flexible in terms of the size of the companies it invests in and their location. However, it does describe its ‘sweet spot’ as mid-cap growth companies in developed markets and it steers clear of direct holdings in emerging markets. Currently, however, it is biased towards larger caps with more than 50% of the portfolio invested in the US.
Among the top holdings are household names including Amazon, Facebook and Visa.
“I’m fed up with paltry returns on cash” Gary Adams, web content manager/writer
Fed up with paltry returns on cash Isas, I made the decision to put most of my savings into a stocks and shares Isa in September 2015. I chose five funds – four passive and one active:
- Aberdeen Asia Pacific Equity
- Blackrock 100 UK Equity Tracker*
- Invesco Perpetual European Equity
- Legal & General US Index*
- Woodford Patient Capital Trust plc
Since 9 September 2016 to 13 March 2017, these funds are up 30.8%, 21.4%, 30.7%, 32.9% and down 7.7%, respectively. In contrast, factoring in inflation, the money I have left in a cash Isa is worth about the same as it was before.
It goes without saying that my investment return is significantly more than what is offered by a cash Isa. However, two things come to mind: first, there is risk and it’s not an unusual view to believe that today’s markets are extremely high and due for a price correction; and second, the psychological cost of withdrawing money from investments is high.
Not wanting to lose out on compounding affects or the fear of beginning a bad habit means that this money is off-limits to me, even if actually taking it out is as simple as clicking a mouse button.
“I’m happy with index trackers” Jasmine Birtles, columnist
I am putting my Isa money, as I usually do, in an indextracking fund. It’s the Scottish Widows FTSE 100 fund, which tracks performance of the biggest companies listed on the London Stock Exchange.
I can honestly say that I have never opened a cash Isa. In my view, Isas are for long-term investing – really an addition to my pension – and I know that in the long term, cash (ie savings accounts) actually loses money because it doesn’t keep up with inflation.
Cash is fine for the short term, but for long-term investing we need riskier products. I tend to put my money into index-tracking funds because they are a cheap and effective way to invest in the stock market. I have investments in the HSBC FTSE 250* index fund as well.
A few years ago I put some Isa money into Nutmeg, setting my risk profile as pretty risk-happy (because I am). But, on the whole, I’m pretty happy with index trackers for much of my future investments.
“I have shares in an investment trust” Jeff Prestridge, columnist
I have always believed in building long-term wealth by investing in shares and investment funds. My Isa strategy is no different. Forget cash, think equities.
Of course, it would be different if I were using Isas to build a home deposit – cash every time – but I’m not. I am in my 50s and frantically planning for a future without gainful employment and where income from self-employment will be at best sporadic.
I have an online Isa with Hargreaves Lansdown and drip money in on a monthly basis.
This year, I have bought shares in Edinburgh Investment Trust, a global fund managed by Invesco Perpetual.
It complements other Isa holdings in the UK, emerging markets, natural resources and Japan – all investment fund or trust based.
My only regret is that come 5 April I will not have fully utilised my £15,240 Isa allowance. But then there is always next year...
“I’ve invested in a cautious fund” Darius McDermott, columnist
I’m very cautious in my outlook at the moment. The UK and US stock market look expensive, as do bonds, and there is a lot of uncertainty in the world. I can’t really find any asset class that look an out-and-out buy.
So I’ve put my Isa money into Smith & Williamson Enterprise. It’s a long/short equity fund in the absolute return sector, designed to be less volatile than the UK stock market. Unlike many peers, the managers generally don’t use futures to provide their short exposure, as they feel these are a bit of a blunt instrument, and their shorts aren’t just hedges to dampen volatility but are genuine sources of alpha.
This strategy has seen the short side of the fund perform well, even in rising markets. This is reasonably rare and obviously a huge plus.
“I’m buying an ethical cash Isa” Simon Read, columnist
The money I stick in an Isa this year will be in cash, simply because it’s possible I may need it sooner rather than later.
I prefer ethical Isas, as I like to know that my money is doing good rather than being used to fund something bad. But that means my choice is limited.
Just three companies offer ethical cash Isas, where you can see where the money is lent: Charity Bank, Triodos Bank, and Ecology Building Society. Charity uses savers’ money to lend to charities and social enterprises. Triodos backs “organisations which put people and the planet before profits”.
Ecology lends to “projects that respect the environment and support sustainable communities”.
Sadly, Ecology’s Foundation Isa, which paid 1%, was closed to new savers “due to high demand” last year.
That leaves me with the choice of 33-day notice Isas from Charity and Triodos, which pay 0.9% and 0.75% respectively. I’ll go for the higher rate at Charity.
*Member of Moneywise’s 50 First Funds for beginners
A financial adviser will help you understand whether this is an appropriate investment for your circumstances.
Don’t be taken in by the promise of high returns and always consider how much you are willing to invest and then choose on that basis.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
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.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
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.
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 increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
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).
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.