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ISA strategies for tough times

We take a look at what steps you can take to help your investments pull through these tough times.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

As humans, we tend to find it very difficult to do nothing in worrying situations. It’s why so many people find it hard not to run away screaming when they see a bear (which tends to draw their attention).

The good news is that there are plenty of proactive and sensible steps you can take right now, which can put you in a better place when the tough times pass.

This article is not personal advice. If you’re unsure, please seek advice. Unlike the security offered by cash all investments and any income they produce can fall as well as rise so you could get back less than you invest. Tax rules change and benefits depend on individual circumstances.

Shelter your allowance right now – invest whenever you like

If you plan to invest in the future but aren’t keen to do it right now, and want to shelter yourself from UK tax, you can consider paying into a Stocks and Shares ISA. This will let you use your ISA allowance before you lose it and then invest at a later stage once you know what’s right for you.

Please remember that all investments rise and fall in value, so you could get back less than you invest.

Drip feed cash into next year’s allowance

One useful approach if you’re not sure when to time your entry point is to add money monthly into an ISA. You can make payments into the HL Stocks and Shares ISA from as little as £25 a month.

You can always top up with lump sums throughout the tax year when it makes most sense for your finances. And if you have the money to do so, you could spread your £20,000 allowance (in 2019/2020) equally across the tax year by making 12 monthly payments of £1,666.66.

Find out more about regular investing

Save capital gains tax on your Sharesave scheme too

Given that they’re usually priced at a discount in the first place, some Sharesave (Save-as-you-earn) schemes will still be showing gains over three years. If you’ve made money, there’s a specific rule to save you CGT on shares from a Sharesave scheme. As long as you transfer the shares into the ISA within 90 days of the shares maturing (when you buy the shares from the scheme), you can transfer up to £20,000 worth, and there won’t be any CGT to pay on them. And when share prices are low this means you can get more shares in your Stocks & Shares ISA.

Open a Lifetime ISA – even if it’s with the bare minimum

If you’re 39 or under, you can open a Lifetime ISA (LISA) and just put a small sum of cash in it. You might not have plans to buy a first property, and you might already be saving in to a pension. However, taking out and making a payment into a LISA now, means you can then pay further monies into it at any time before the age of 50. It keeps your options open in case your plans change and you want to take advantage of the government bonus – they will add 25% on whatever you put in up to the £4,000 annual allowance limit (in 2019/2020).

You can withdraw money (after 12 months from the first payment) from a Lifetime ISA to buy your first home (worth up to £450,000) or at age 60. Other withdrawals will usually mean a 25% government charge, so you could get back less than you put in.

And if you’ve made any gains on your investments or received any interest on your cash, you’ll be charged 25% of them, too.

Remember savings outside a pension could affect your entitlement to state benefits. And if your employer makes pension contributions when you do too, you should always consider this first

More about Lifetime ISAs

If you’re eating into your pension pot, why not consider other options

One approach to consider when you’re drawing cash from your pension is just to take the natural income it produces. This is less likely to be affected by share price volatility as long as the business fundamentals and dividends remain steady. Please remember though all dividends are variable and not guaranteed.

There are, however, some investors who are nibbling into the capital as they go along, and at times when markets fall, we feel this can be a higher risk strategy. You’re eating into a larger percentage of your pot when prices fall, and this will continue to have an impact even when markets recover.

But if you have other sources of savings such as ISAs alongside your pension, it can give you far more flexibility. You can draw the income from Stocks and Shares ISAs to help boost your income, or you could dip into Cash ISAs. It is wise to still maintain your emergency fund of 3-6 months’ worth of expenses.

Remember, money in a pension can’t be accessed until you’re 55 (57 from 2028).

Find out more about Stocks & Shares ISAs

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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