Use them or lose them deadlines
| Product | Deadline |
|---|---|
| ISA | |
| Online | Friday 5 April – 23:45 |
| Telephone | Friday 5 April – 23:55 |
| Postal | Friday 5 April |
| SIPP | |
| Online | Friday 5 April – 23:45 |
| Telephone | Friday 5 April – 23:55 |
| Postal | Friday 5 April |
| VCT | |
| Paper applications | Wednesday 3 April |
1. Use it or lose it
The most important consideration for investors is that if they do not use their ISA allocation before 5 April, they will miss out on the tax benefits.
"Use your ISA allowance, or as much of it as you can," said Darius McDermott, managing director of Chelsea Financial Services. "If you don't, you'll lose it."
McDermott says that parents and grandparents should also consider opening a Junior ISA or Child Trust Fund (CTF).
"Again, if the allowance is not used, it will be lost forever," he said.
2. Be prepared with personal information
Danny Cox, head of financial planning at Hargreaves Lansdown, says one of the key oversights investors often make is not having their personal information ready when they make their ISA application.
"Investors need to have their national insurance number and debit cards to hand, with cleared funds in the account when they call or apply," he said.
"But it is important not to leave it too late or you risk missing out on important tax breaks."
He cites the example of a previous client who called the Hargreaves Lansdown helpline five minutes prior to the deadline, but did not have his national insurance number with him, and therefore lost out on that year’s tax breaks.
3. Assess suitability
When it comes to selecting the components of an ISA, Gavin Haynes, managing director of Whitechurch Securities, says the first thing investors need to do is check that the portfolio's aims are aligned with their own.
"The key for investors is to invest in an ISA that fits their risk tolerance and their objectives in terms of income or growth [or a combination of the two]," Haynes said.
Part of this suitability check involves reviewing asset allocation and geographical weightings, according to McDermott.
"Review your existing ISA portfolio and identify any unintentional biases – is there too much in bonds or too little in US equities, for example?" McDermott said.
"Generally make sure that your portfolio is still on track to achieve your goals."
4. Take a long-term view
"The high levels of volatility in recent years have focused investors’ minds on the risks attached to investing that have to be accepted if choosing the stocks and shares option ahead of, or as well as, the secure option of a cash ISA," Haynes said.
He adds that investors should not lose sight of the long-term benefits of investing their money, which nearly always beats cash, even in falling markets.
"The key for me is that, if investing in a stocks and shares ISA, you have to be looking at the long-term, by which I mean a minimum of five years," he said.
"On such time scales I believe there are plenty of opportunities for stocks and shares ISA investments."
5. Don’t follow fashion
Many investors inevitably chase returns after the easy money has been made in any asset class, which is why Haynes says they need to focus on fundamentals and take a high-conviction view on an area of the market that suits their goals.
"Following short-term trends and fads has often led to investors buying the wrong thing at the wrong time and one that may not be suitable for their circumstances," he said.
He reminds investors of the rush into technology funds before the dotcom crash in 2000.
6. Beware of past performance
Along the same lines, Haynes stresses that outstanding past performance does not necessarily mean a fund, or manager, can repeat similar returns in current market conditions.
"At the same time ISA investors should beware of investing in areas just because they have shown strong past performance," he said.
"Markets are cyclical in nature, and just because an asset class or market has been the best in the past, it doesn’t mean it will provide the best future returns."
7. It is not just about investing in shares
"It is important to be aware that you do not have to invest your stocks and shares ISA allowance in the stock market," Haynes (pictured) said.
Instead, he points out that investors can choose from other areas such as fixed interest, property and multi-asset funds – which dampen overall volatility while offering exposure to various asset classes.
"These may be more suitable for investors with a more cautious attitude to risk but looking to receive a better return than cash," Haynes said.
Cox adds that investors do not need to rush into a selection of funds or equities.
Instead they can open their stocks and shares ISA and hold their investment in cash while they decide which funds to allocate capital to.
8. Combat volatility by drip-feeding
One of the best methods of protecting capital if the market turns sour is to continue to invest on a monthly basis.
"Given the dramatic swings in markets, investors may be more comfortable spreading payments over the year rather than investing a lump sum," Haynes said. "This can provide the benefits of pound/cost averaging during times of falling markets."
In a previous article, FE Trustnet highlighted five funds that were suitable for a monthly savings plan.
9. Look for value
Investors do not just need to look at the overall growth and income potential of their holdings, they also need to consider the impact of costs.
"Charges can differ significantly if you are investing your ISA directly, or if you are seeking advice," Haynes said.
"Make sure you shop around to get the best terms. Despite an obsession with low costs, as in all walks of life, the cheapest option is not necessarily the best course of action."
"If you are uncertain about choosing your own investments, then the extra fee for advice or a managed solution may prove worthwhile in long-term returns generated and suitability."
10. Take steps to reduce your tax liability
McDermott says there are several things investors can do to reduce their overall tax liability.
"Use your CGT [capital gains tax] allowance," he said. "If you want to redeem any holding held outside an ISA, make sure you are using your CGT allowance to avoid paying any unnecessary tax to the taxman."
"Or you could crystallise any recent gains held outside an ISA and use the proceeds to do your ISA this year."
Additionally, McDermott says investors can reduce their inheritance tax liability by giving away up to £3,000 before the end of the tax year.
Looking forward to the retirement years, he adds that investors can use their annual pension allowance and get up to 50 per cent tax relief, depending on individual circumstances.
Alternative schemes such as venture capital trusts (VCTs) can have additional tax benefits in that they offer the ability to reclaim some of the tax that has already been paid – up to 30 per cent of the value invested in the VCT.