What is a Self-Select ISA?
Like other stocks and shares ISAs, a self-select ISA allows an individual to invest a portion of his savings in a tax-exempt shelter. However, as the name suggests, a self-select account allows the account holder to determine the stocks, bonds or funds that will be purchased with the money. Instead of relying on a fund manager, broker or financial advisor to invest your funds for you, you are in the driver's seat, deciding which investments to buy and when to move them to another vehicle.
There are many different types of investments to choose from when you are looking for a vehicle for your ISA money, including:
- Shares listed on international exchanges
- Some corporate and government bonds
- Funds like those found at Fidelity FundsNetwork and Egg
- Unit trusts and investment trusts
- Open-ended investment companies
You can look for the best candidates on your own, or enlist the assistance of a financial professional who can make recommendations and then allow you to have the final say in where the money will be allocated.
Unless you enlist the assistance of a stockbroker, you will need to take some time to research the potential investments to determine which will be the best for your needs. This is not too difficult for those who have some financial background, but becomes considerably more challenging for individuals who don't know a stock from a bond. If you fall into the latter category, there is a variety of help available:
- Develop a discretionary portfolio, where your stockbroker makes the investment decisions for you
- Opt for an advisory portfolio, where your stockbroker makes recommendations, but the final decisions are left up to you
- Work with an online brokerage that offers information about investments without specific advice or recommendations
As you might suspect, the level of assistance you receive will greatly impact the amount of fees you pay for your trades. If you allow a stockbroker to build your portfolio for you, the fees will be considerably higher than if you use an online brokerage to facilitate your transactions. However, even an online brokerage tends to charge higher fees when information is provided, compared to those who simply facilitate the transactions per your instructions. You must decide how much you want to pay for professional services and how comfortable you are making investment decisions without input from an expert in the field.
Individuals who are looking for a consistent return with less risk might wish to consider bonds or funds. If you decide to purchase funds, buying from the sources listed above, as well as other fund supermarkets, will often provide the best choice at the cheapest price. You can put all of your ISA money into funds or combine those investments with other types for a more diverse, balanced portfolio.
A self-select ISA is a good choice if you want to have control over where your money is invested. For those who have time to research and choose from the various options, a self-select ISA may reap good returns for very little cost.