Henry Irving 11 March 2019
How times have changed.
When PEPs (the forerunning to ISAs) were first introduced in 1987, you could only contribute a maximum of £2,400 each tax year. Many thought it was barely worth considering.
But while other tax breaks have been cut by various governments, the valuable gift of the ISA allowance has continued to grow. And today, investors can shelter up to £20,000 from the taxman in ISAs, meaning a couple could protect £40,000 in this tax year alone.
No doubt, this has played a major part in the rising numbers of ISA investors building significant tax-free portfolios. In fact, we have over 161 clients who have consistently contributed and built ISAs worth over £1 million by investing in a Stocks and Shares ISA
I recently spoke to one client, Mr B from London, who has done just that.
He shares his top ISA tips as well as explaining how he prepares for both good and bad times when saving for the future.
This article is not personal advice so, if you are unsure about the suitability of an investment, please contact us for advice.
Investments will fall as well as rise in value so you could get back less than you invest. Remember tax rules can change, and the benefits will depend on individual circumstances.
Mr B from London
When did you start using ISAs?
I got started pretty early on. I was fortunate that my father was an existing Personal Equity Plan (PEP) investor and in the early days, he helped me get going. This family encouragement played a big part in my initial interest in ISAs and whetted my appetite for investing. I’ve continued putting in the maximum to my ISA since then.
Why do you invest in ISAs?
The tax advantages are obviously the main reason. But also something that’s not really talked about is the reduction in hassle. I hold investments outside ISAs and the tax calculations can be horrendous. If you want to buy and sell investments, you’ve always got that nagging doubt of tax implications in the back of your mind. And tax can be such a minefield to navigate.
With the ISA, you don’t have as much of the tax bureaucracy to deal with. It’s much cleaner and if I just want to buy and sell an investment, I can just get on with it and don’t have to worry about the tax mess it might or might not leave behind.
Where did you first learn about investing?
I suppose it was through my father’s interests. He was an investor for a long time and by putting some money aside for me to invest, this incentivised me to take an active interest. Today, I keep up-to-date with the markets by reading the Financial Times and I pick up ideas for investment opportunities from there.
Do you invest in funds or shares?
I used to have most of my investments in individual shares rather than funds and I got some good successes out of that. This was mainly companies, such as ARM Holdings, that I knew very well. I backed ARM when they were 30p per share and I sold them at £12 per share. But I wouldn’t claim that all my investments were that successful!
Over time, I realised that I was neglecting quite a few of my investments. I just didn’t have the time and wasn’t close enough to the companies I was investing in. That’s when I started to switch into funds and leave it to a professional manager to look after.
What’s your investment strategy?
I try to have a mixture invested in different geographies and sectors. I don’t want to hold too many funds because I don’t have the time to track a huge number of underlying investments in these funds.
I also tend to drip-feed money into new investments. I start small and then scale up. For example, I’ll make an initial investment into something and then over time when more funds are available, I’ll invest another £5,000 or £10,000. This might not be the best strategy but it works well for me.
What are the keys to successful investing in your opinion?
You’ve certainly got to be prepared to take the downs as well as the ups. Sometimes I’ll take a look at the market and my portfolio on a bad day and feel like going back to bed! But I wouldn’t recommend taking action on a day by day basis. It might seem obvious but it’s also important not to have all your eggs in one basket and hold a number of different investments.
Getting yourself in a pattern where you monitor your investments regularly is also good. For a long time, I wasn’t in a regular pattern of monitoring my portfolio. I then set myself an objective of checking at least once a month, then it became once a week and now I look at my portfolio every day. If you’re just checking your portfolio sporadically, it’s hard to get an idea of what’s working well and not too well so you can take the appropriate action.
What do you enjoy about investing?
It keeps me knowledgeable about things that are going on in the market and economy. I often see things happening in the news and it’s interesting how this affects your investments. Of course, I could pay an adviser to manage all my investments for me but that wouldn’t feel the same. I really like the connection to my investments and the intellectual challenge of trying to grow my money.
Open or top your ISA before 5 April
Most of our clients open their ISAs with a debit card, either over the telephone or online. We've made the process as simple as possible.
If you are happy making your own investment decisions and want to apply for your ISA it should take no more than five minutes. Please ensure you read and understand our terms and conditions (including Tariff of Charges) and key features before you apply. You can also find out more about the HL Stocks and Shares ISA before applying.
Please remember, all stock market investments can fall in value as well as rise so they should be held for the long term and you could get back less than you invest. Tax rules can change and the value of any tax shelters will depend on your personal circumstances.
You can open or top up an ISA in minutes by calling our Helpdesk on 0117 980 9950 or by applying online.