You’ve still got some time to make the most of your ISA allowance in this tax year. So we’ve pulled together our top tips for things you might want to think about when planning your investments.
8 tips for ISA investors
1. Don’t try to time your investments to the market
Market lows often lead to emotional or panicked decision-making. And when it comes to investments these two things could cloud your judgement.
The reality is buying low and selling high is a difficult thing to do – if it wasn’t, everybody would be doing it.
Because it’s almost impossible to predict the markets, it’s very difficult to succeed in investing this way. There’s never a ‘best’ time to invest or a ‘worst’. Panic selling or buying is not going to do you any favours. Investments are about a long-term strategy.
2. But do time your aims, time horizon, objectives and goals
Firstly work out what you’re trying to achieve. This will inform the type of investments you choose. Are you looking to invest for an income in retirement? Do you have a minimum income target for your investments? Make sure you pencil in regular times to check up on how you’re doing and see if you’re hitting your goals.
3. Don’t chase performance
Investors chasing performance are nearly always too late. Even though we know past performance is no indication of future performance, many people still want to jump on the bandwagon and invest in high-performing areas.
But time and time again this has been shown to fail. There are countless examples, including: the dot.com bubble and the financial boom in the mid-90s. Instead, each year's ISA decisions should be taken in the context of a long-term strategy.
4. Have a plan
If you don’t, any route will take you to any destination. Before you make any investment decisions, sit down and take an honest look at your entire financial situation – especially if you’ve never made a financial plan before.
The first step to successful investing is figuring out your goals and risk tolerance – there is no guarantee that you’ll make money from your investments. However, if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.
Read about portfolio construction tips.
5. Regularly review and rebalance your portfolio
The market environment changes constantly, which can cause any long-term plan to go off course.
To keep your investments on track, it's wise to set aside time to review your investments on a regular basis. A review is especially important if you've had any major changes in your life, for example starting retirement, changing jobs, getting married, buying a house or having children.
A review will help you evaluate your existing portfolio and make any necessary adjustments to your finances.
6. Accept that volatility is a fact of life
Unfortunately volatility is always going to be a factor in investing. Be aware of risk during times of volatility, but don’t necessarily let it put you off.
As we know, there is no ideal time to invest, the only way to avoid volatility is to keep your funds entirely in cash, but you will also miss out on any potential upswings that might follow a downturn.
If you wait until the ‘perfect time’ to invest you could find yourself waiting forever.
Read more about volatile markets
7. Remember to keep your portfolio diverse
As some markets fall, others will rise and could cancel out any losses. How you spread your money will be led by your attitude to risk.
You might want to consider spreading your investments across a range of funds, geographical regions or even a mixture of both to help dilute risks.
Keep in mind that diversification doesn’t ensure a profit or guarantee against losses.
ISA rules allow investors to hold a wide range of assets, including cash, fixed-income, collective investment funds and individual shares. Often investors don’t take advantage of this flexibility to spread their risk, putting their money into the same funds year after year.
You might like to consider investing across a mix of different geographic regions and sectors.
Read more about diversifying your portfolio
8. Don’t forget or ignore the basics
Remember to focus on the underlying investments which are right for you, given your aims, attitude to risk and the assets/investments you already hold.
For example, if you’re looking to build savings for retirement in 20 years' time, you might want to focus on funds that may be more risky, and volatile but, will hopefully generate higher returns over the longer term.
Conversely, if you need a short-term emergency fund, you’d do better to look at a cash ISA.
Considering the role index tracker funds can play
Index-Tracker funds (also known as passively managed funds) can be a great way to start building a portfolio as they are an easy and popular way to invest.
They closely follow the performance of a particular stock market or sector, in the UK or abroad, and are a low-cost way to invest in the stock market, as Index-tracking funds don’t involve the extensive research used in managed funds to select particular companies.
Index-tracking funds will only buy and sell shares to match the index, therefore transactions are less frequent than for actively managed funds and are therefore generally cheaper.
We’ve a range of Index funds to choose from covering different sectors and geographical regions.
Read more about our Index tracker funds.
It is Important to Remember
The value of an investment and any income from it may fall as well as rise is not guaranteed and therefore could be worth less than the amount invested. Although there is no fixed term you should consider ISA investments to be medium to long term, ideally five years or more.
The way the Government treats tax on ISAs may change in the future. The value of the tax advantage depends on individual circumstances.