Investment ISAs

Investment ISA

An investment or stocks and shares ISA as they are often called is a "tax wrapper" that allows you to invest in different types of investments e.g. funds to individual shares to help you save any profits you make from tax.

An investment ISA might be for you if you are happy to invest for 5 years or more and you have not used your current annual allowance which is currently £20,000 (For the 2021-22 tax years).

As with all investing you need to be comfortable that the value of your investment migh go down as well as up.

What types of investments can you hold in an ISA?

Within an investment ISA you can hold a variety of different investment products. 

The benefit is that any growth or interest you enjoy are free from tax.

Different investments that can be held including:

• Individual company shares. If you wish to buy directly into individual companies, then a good way to do this is via an online fund supermarket that offers a trading account facility. For more information on sharedealing ISAs click here.
• Unit Trust Funds - Collective investment fund typically investing in 20+ companies in line with an investment mandate e.g. investing in UK companies. With this type of investment your money is pooled with other investors and the fund is split into units and units are created when people buy into the fund or cancelled when units are sold
• OEIC Funds (Open Ended Investment Companies) - Like unit trusts they are collective investment funds typically investing in 20+ companies in line with an investment mandate e.g. investing in UK companies. As with a unit trust your money is pooled with other investors and the fund is split into units and units are created when people buy into the fund or cancelled when units are sold. The key difference to a unit trust is pricing. With a unit trust there are two prices for buying and selling whilst for an OEIC there is just one price.
• Investment Trusts Funds - Are companies that raise funds by selling a fixed amount of shares to investors, then pool the money to buy a wide range of shares and assets. Investment trusts can borrow money to buy shares (gearing) unlike unit trusts.
• Exchange Traded Funds - Are funds that issue shares which can be traded on the stock exchange. ETFs offer exposure to a wide range of asset classes and can be bought and sold at any time whilst the stock exchange is open. They are typically low cost funds.
• Corporate Bonds - With a corporate bond you are buying a debt security issued by a firm. In return for your capital as an investor you get a pre-determined interest payments on a fixed or variable basis. If you wish to buy directly into a corporate bond, then a good way to do this is via an online fund supermarket that offers a trading account facility. 
• Government Bonds - As with a corporate bond you are buying a debt security but a debt issued by a government. In return for your capital as an investor you get a pre-determined interest payments on a fixed or variable basis. If you wish to buy directly into a government bond, then a good way to do this is via an online fund supermarket that offers a trading account facility.

Are you new to investing or simply don't have time?

A ready made ISA investment portfolio may be right for you where you get investment experts to choose the asset mix of your ISA on your behalf.

The good news is that over the last few years investment platform providers have upped their game in providing carefully constructed model portfolio options to suit all kinds of investors for your ISA.

Using low cost funds such as ETFs and index trackers and smart technology there are some excellent options for investors.

Providers of ready-made portfolios include:

• Interactive Investor
• Hargreaves Lansdown
• Moneyfarm
• AJ Bell

Choosing a ready made ISA portfolio

With each ready made portfolio, it is the investment team at your selected portfolio provider who have chosen the investments.

Each portfolio will typically have a set risk profile e.g. cautious, balanced, adventurous, and then will invest in assets that are aligned with the portfolio risk profile. The ISA portfolio provider’s documentation will clearly explain exactly where your money will be invested.

Depending on the type of ISA portfolio service offered:

• The fund managers will then manage the investments on your behalf or
• Having made the investment choices for you, it is up to you on how you “manage” the investments going forward

The investment experts at the portfolio provider may also monitor the make-up of the portfolio, and may consider changing it if market conditions alter, which might help mitigate the effects of falling stock markets.

For example, they might decide to have more exposure to one investment fund which they think is set to perform well, and to reduce their exposure to another fund.

However, you still need to make the initial decision as to which portfolio to choose.

When deciding which portfolio to invest in, you might decide to look at past performance records.

If you do, then please remember that past performance is not necessarily a guide to future performance.

Top 10 things to consider when choosing a stocks and shares ISA

• You should be prepared to invest for the medium to long term with a stocks and shares ISA - for example, for five years or more.
• If you think you might require access to your cash in the next couple of years, a stocks and shares ISA may not be the right choice for you. Share prices can be very variable - especially in the current financial climate - and so if you were to withdraw your investment in the next twelve to eighteen months, you could end up with less money than you started with.
• Different stocks and shares ISAs have different investment options. These range from £50 per month (e.g. through a fund) to a specified minimum investment (e.g. £1,000).
• Some ISA providers will give you online access to your account, allowing you to see the investment performance of your ISA and keep up to date with any charges incurred.
• If your stocks and shares ISA isn't performing as well as you'd like, you will usually be permitted to transfer it another provider. To do this, speak to your new ISA manager who will arrange the transfer, allowing you to avoid losing any tax benefits by withdrawing your cash.
• You can transfer shares you get from an HMRC-approved SAYE (save as you earn) scheme run by your employer, or a share incentive plan, into a stocks and shares component of an ISA without incurring capital gains tax, up to your annual ISA allowance.
• You will not be able to transfer any existing non-ISA shares, or shares you've inherited, into a stocks and shares ISA.
• With a stocks and shares ISA, there is greater long-term growth potential than a cash ISA - however, bear in mind that the value of your investment can go down as well as up.
• If you have a stocks and shares ISA from a previous tax year, you're permitted to move this into a current stocks and shares ISA or split it between more than one stocks and shares ISA.