July 24, 2014

Stocks and Shares ISA

It is possible to invest the full £11,280 yearly ISA allowance within a Stocks and Shares ISA tax wrapper. Compared to a cash ISA, a Stocks and Shares ISA gives you the potential to go after higher financial rewards through shares, investment funds, bonds as well as other investment options. So here are Investoo’s Stocks and Shares ISA tips:

1) The rewards can be greater, but make sure you can handle the risk

As a Stocks and Shares ISA can give you exposure to the financial markets, there clearly is an element of increased risk. Therefore, you should ensure that you are capable of dealing with the risks, for example a fall in the value of your investment. Experts suggest ensuring that any debts are under control before considering a Stocks and Shares ISA. Likewise, be prepared to leave your money invested for around five years in order to deal with the highs and lows of the stock market.

2) Understand the charges

Placing various investments within a Stocks and Shares ISA can come with associated charges. For example, by default funds have a 5% initial charge as well as an annual management charge of around 1.5%. Therefore, these charges can affect the value of your investment and will be very noticeable if the returns aren’t as high as hoped for.

Similarly, if you opt for a ‘self select ISA’ in which you place your own investment choices within the ISA, then there are associated costs. For example, buying shares come with associated costs from a broker.

3) How to actually invest, DIY or advice?

If you feel totally confident in making your investment decisions, then it is easy to use a stockbroker or a fund supermarket to invest in your Stocks and Shares ISA. Investing through a fund supermarket or discount broker will have the added benefit of reducing many of the typical associated costs. For example, some fund supermarkets completely discount the initial 5% charge, meaning your money is working as hard as possible for you from day one.

However, it is common for many potential investors to use the services a financial adviser. These are people who are trained to assist you in making financial decisions based on your personal circumstances.

4) Do your homework, it doesn’t hurt!

Even if you opt to use a financial adviser, it doesn’t hurt to be aware of the possible investment choices. For example, the majority of the 2000+ investment funds out there have a fact sheet which highlight what companies the fund will invest in. Similarly, it is possible to view past performance through charting, however this by no means gives a guarantee as to future performance.

There are many possibilities for investors depending on their risk profiles. For example, cautious investors may look to the lessened risk of certain Multi Manager funds, while those seeking higher returns and risks may look to emerging markets funds.