Isa strategies and types: what the experts think

Turbulent times

With the end of the tax year fast approaching, it’s important to ensure you use up as much of your £20,000 tax-free Individual Savings Account allowance as possible, says Mary McDougall in Investors’ Chronicle. But deciding how and where to invest is rarely straightforward, and with “inflation, war and volatility currently the dominant themes in markets”, the outlook this year is even more uncertain.

Stocks vs. cash

“Stick your money in stocks” is the message you’ll hear, said John Stepek on Moneyweek.com. Given “pitiful” savings rates (interest rates on cash Isas are mainly below 1%) that makes sense if you can lock your money up for a long time – history shows equities deliver better returns than any other asset class. “But there’s a lot to unpack in that idea of ‘the long run’.” If you can’t put your money away for at least five years, stock investing means “taking a significant risk that your money might not even grow in nominal terms, let alone ‘real’ terms.” At least with cash, you’ll get back what you put in – even if it doesn’t buy as much. “Another perhaps more important point” is that, on the whole, “stocks don’t like inflation either”. And as for bonds…

A new set of fangs

The answer may be a “multi-asset” fund, comprised of a mix of assets – shares, bonds, cash and alternative assets such as infrastructure, property or gold – “that each behave differently during market ups and downs”, said Holly Thomas in The Sunday Times. They’re more expensive than other actively managed funds but, as Darius McDermott of Calibre points out, “it’s performance after charges that counts most”. Funds to consider include BNY Mellon Multi-Asset Balance, Threadneedle Managed Equity & Bond, Rathbone Strategic Growth, and Fidelity Multi-Asset. Another strategy, said Merryn Somerset Webb in the Financial Times, is to head for “long-neglected” sectors now “bounding back into favour”. Merrill Lynch recently suggested that we “redefine the Faangs” (i.e. Facebook, Amazon, Apple, Netflix, Google et al) so that the letters stand for “fuels, aerospace, agriculture, nuclear and renewables, and gold/metals and minerals”. All have performed well this year and should continue doing so in the medium term.

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Isa types

There are now seven different types of Isas to choose from, said Elizabeth Anderson in The Sunday Times. You’re not limited to choosing just one, but the £20,000 cap applies across all your Isas.

Cash Isa

• Best for short-term saving goals, because the interest paid is well below the inflation rate.

Stocks and Shares Isa

• Best for long-term savings. Market ups and downs should be ironed out in the long run.

Innovative Isa

• Best for those willing to take a higher risk. Majors on peer-to-peer lending. Difficult to withdraw investments at short notice and not covered by the Financial Services Compensation Scheme.

Lifetime Isa

• Best for first-time buyers or those seeking a pension alternative. Savers can pay up to £4,000 each year and the Government will add a 25% bonus. Lisas can be used to buy a first home worth up to £450,000.

Help to Buy Isas

• Best for first-time buyers. Also benefits from a Government bonus. Now closed for new applicants.

Aim Isa

• Best for investors seeking to reduce inheritance tax. But since it’s focused on London’s Alternative Investment Market, the risk is higher.

Junior Isa

• Best for under-18s. You can invest up to £9,000 a year in a Jisa on behalf of your children – there are both cash and investment options.