As the fifteenth anniversary of ISAs approaches, the next tax year’s annual ISA allowance of £15,000 is likely to encourage savers and, with interest rates remaining low, stocks and shares ISAs are looking increasingly attractive. An annual investment of £15,000 every year for ten years in the average investment company would be worth £266,607.
The Association of Investment Companies (AIC) website, www.theaic.co.uk, highlights 11 common mistakes that investors should avoid, from “don’t assume recent trends are stable”, through to “don’t change course at the slightest downturn” and “don’t act on rumours.”
In addition, Jacqueline Lockie, Head of Training, Association of Investment Companies (AIC), has shared her tips on how to make the most of your savings and investments, and how to spring clean your finances. Jackie is a Fellow of the Institute of Financial Planning, and is a Certified Financial Planner.
Jacqueline Lockie, Head of Training, Association of Investment Companies (AIC) said:
“The race to the end of the tax year finish line has become something of an annual sport. But there’s nothing like the start of the new tax year to spring clean your finances and make your decisions at leisure, not in haste. Remember investments made at the start of the tax year, rather than at the end, have an extra year to work in the stock market. It also gives more cautious investors the time to drip feed their annual ISA limit into the market on a monthly basis, reducing some of the risk of market timing.”
Jacqueline Lockie’s tips:
• Pay your debts: Make a list of all investments and assets, including who owns what within the household. Do the same for all liabilities, such as mortgage, credit card debt and bank loans. Can you pay off some of your debt with your savings, ensuring you leave some cash for emergencies? It makes financial sense to repay debt over making new investments.
• Make the most of your lower rate tax bands: Ensure that these are fully utilised, especially if you have a spouse or civil partner. You may find that one partner is paying more tax, while the other is not using their entire allowable tax limit. Consider moving ownership of assets to accommodate this, but remember it might be best to seek financial advice to ensure all boxes are ticked.
• Research your potential and existing investments: Do you invest via regular savings or with a lump sum? Review this in light of how long you expect your money to remain invested, and your attitude to risk. Don’t choose an investment just because short-term performance has been good if you are uncomfortable with how these returns are achieved and where the investments are made. Make sure you fully understand your investments. Consider the charges. They have a drag effect on any investment, but consider the overall value as the lowest charge may not necessarily be the best option.
• ISAs: Make a resolution to start a regular ISA investment. If you have sufficient funds, you could even make a lump sum investment for 2014/2015 sooner rather than later. Regular saving can help smooth out some of the highs and lows in the price of shares, removing some of the risk of market timing. This is because you buy less shares when prices are high and more when prices are low. However, over the long-term, lump sum investments have tended to outperform because more of your money is working for you over a longer period of time.
• If you want to minimise your tax burden still further, it can also be worth taking a look at salary and pension sacrifice, as well as paying annually into Junior ISAs/Child Trust Funds. But if saving for children, remember to put your own security ahead of your child’s – circumstances can change, and anything in the child’s name stays with the child.
• Finally, remember to take a long term view and make sure you have a diversified portfolio. If you are in any doubt, it is worth seeking financial advice: unbiased.co.uk and the Institute of Financial Planning both have facilities to search for an adviser/ financial planner.