ISA Allowance: Use It Or Lose It!

By: | Tags: | Comments: 0 | April 21st, 2021

Whatever your status or aspirations, it makes sense to take full advantage of tax free savings. With the tax-take ever increasing, it is almost criminal not to utilise one of the few tax breaks available to us. And why wait until the end of the financial year when you can make regular monthly contributions and benefit from pound cost averaging.

The annual Individual Savings Account (ISA) allowance of £20,000 is, for some, not enough but, for others, is ample.

Every financial year we are allowed to shelter up to £20,000 in an ISA. The options are, essentially, a Cash ISA or a Stocks and Shares ISA. A Cash ISA is fine if you are not looking for capital growth but pure protection. With instant access cash ISA rates barely matching inflation, many savers are, unsurprisingly, exploring Stocks and Shares ISAs to provide a return that’s worth having. With inflation at around 0.6%., depending on the index used, you would just need a return of 1%pa to maintain the purchasing power of your money but, with the costs of some products and services, e.g. school fees and house prices, accelerating at much faster rates, savers are looking for higher returns than are available on cash deposits.

House prices have risen at a rate significantly greater than inflation in the last year so saving for a deposit in a Cash ISA may well be risk free but isn’t going to accumulate very quickly.

For those of you who are more risk averse, the concept of a Stocks and Shares ISA may be daunting but it is something of a misnomer because not all such ISAs are heavily weighted towards equities. It is important to invest in an ISA that meets your attitude to risk and just buying an ISA ‘off the peg’ is not advisable as it may disappoint.

It is important to establish your attitude to risk and capacity for loss. This is where a risk profiling tool is crucial in helping you decide where to invest. MediClub @ Chantler Kent’s portfolios are all professionally managed and structured to meet your individual risk profile.

As a result, investing in a ‘Stocks and Shares’ ISA doesn’t necessarily have to expose your savings to excessive risk.

(Using fund supermarkets may (or may not) be relatively inexpensive but they simply offer a facility, whilst a sophisticated I.T. based Wealth Management Programme provides research, rebalancing, flexibility, tax planning advice and accessibility.)

You can invest the full £20,000 annual allowance or drip money in on an ad hoc or monthly basis.

So, to take advantage of your allowance, please contact us at the earliest opportunity.

Asset Allocation

With food and cookery programmes so popular at the moment, why not use the analogy of preparing a pie or culinary dish? You need a range of ingredients to create the perfect dish. And so it is with an investment portfolio: No one ingredient alone is sufficient to make the dish what it is.

With an investment portfolio, whether it be in a Pension or an ISA, you need a range of ingredients. These are known as asset classes.

If you rely on one asset class, e.g. property or shares, then you are exposing yourself to a higher degree of risk because if that one asset class falls in value, then your entire investment falls with it.

By investing in a portfolio of different asset classes, you spread and, arguably, reduce your risk.

Asset Classes

Equities (shares), Fixed Income Securities (cash, government bonds), Property (residential, commercial), Commodities (metals, oil), Hedge Funds (long/short, macro), Venture Capital, Currencies, Cryptocurrencies, Collectables (art) and Structured Products.

All the above have different levels of risk attached to them. Shares, for example, can be broken down into large company shares and small company shares, established businesses and start-ups. They can be further broken down into geographical regions, e.g. Europe, Far East as well as product and service providers, such as oil companies, retailers, mining companies and I.T. companies.

Consequently, the risk can be spread not only across many asset classes but within one asset class. For a more cautious investor, a portfolio would typically hold a greater proportion of fixed interest securities and bonds, with only a modest holding of equities.

MediClub @ Chantler Kent can structure a portfolio to match your individual risk profile, whether in a Pension or an ISA.

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