Keep your wits about you in the last-minute sprint for an ISA

With shares so low, ensure you use the time left to get a deal that defies the downturn, says Melanie Bien

With just under a week to go until the end of the tax year, this is the last chance for investors to think about where they are going to put this year's £7,000 individual savings account (ISA) allowance.

With just under a week to go until the end of the tax year, this is the last chance for investors to think about where they are going to put this year's £7,000 individual savings account (ISA) allowance.

But if you are determined to invest all or part of your allowance, don't rush into a decision. You're likely to regret buying an ISA too hastily, particularly in the current market conditions.

If you haven't yet made up your mind where to invest, research the market carefully, bearing in mind your risk profile and when you want to get hold of your funds. If you have only £1,000 to put aside and there is a chance that you'll need the cash within the next 12 months, steer clear of the stock market.

Mini cash ISAs, which work like ordinary savings accounts and don't expose your money to equities, are the best option. You can invest up to £3,000 each tax year in a cash ISA, many of which require no notice, allowing you to get your hands on your money in an emergency. They offer higher rates of interest than other savings accounts, plus returns are tax-free. Monmouthshire Building Society is paying 4.25 per cent on balances of £10, while Kent Reliance and Safeway are both paying 4.20 per cent. For a full list, go to www.moneysupermarket.com.

Insurance ISAs are another option but you can only invest up to £1,000 in each tax year. Just a handful of providers offer them, including Co-operative Insurance and NFU Mutual. And because they invest in with-profits funds, many impose a market value adjuster when you try to cash in all or part of your fund.

The prospect of significant growth in the long term is only really available from exposure to equities. But you must stay invested for at least five years. With the stock market in the doldrums, shares are cheap, so your money will go further.

However, investors remain wary of equities because of economic instability and the war with Iraq. Three out of four investors are cautious and neither increasing nor decreasing their exposure to the stock market, according to new research from the Association of Investment Trust Companies (AITC).

Yet it would be a shame to miss out on the potential returns offered by equities. And it is possible to spread your risk through diversification.

"Even within an ISA you can pick up four or five funds," says Kerry Nelson at independent financial adviser (IFA) Bates Investment. "I'd stick mainly with UK funds and perhaps one global fund. You should opt for funds without any style bias, which are renowned for stock picking and are quite pragmatic. An equity income fund or distribution fund giving you a little bit of exposure to bonds would also be useful."

Ms Nelson recommends Lazard UK Alpha and Framlington UK Select Opportunities for your UK fund. For equity income she likes the Invesco Perpetual Income fund; for distribution funds she recommends New Star Distribution or Jupiter Distribution; and for global funds, Fidelity Wealthbuilder.

Some fund managers are launching products to address investors' current concerns about risk. Gartmore's Cautious Managed fund, for example, gives you exposure to equities but also invests in lower-risk bonds, so reducing overall volatility. The fund offers regular income and the prospect of long-term capital growth.

The best way to invest in several funds is through fund supermarkets, which have greatly reduced charges. Even if you are only investing in one fund, the initial charge (which can be as high as 5 per cent) is usually cut by 2 or 3 per cent if you invest via a supermarket, and in some cases may be removed completely.

Among the best-known fund supermarkets are Fidelity's FundsNetwork (www. fidelity.co.uk/direct/select/ fundsnetwork), FundsDirect (www.fundsdirect.co.uk) and Ample (www. ample.com).

Some IFAs also offer their own supermarkets where you can buy funds, without advice, at discounted prices. They include Chelsea Financial Services (www.chelseafs.co.uk), Bates Investment (www.wiseup.com), Hargreaves Lansdown (www.hargreaveslansdown. co.uk), Chase de Vere (www. chasedevere.co.uk) and Charcol (www.charcolonline.co.uk).

Investors can also reduce risk by not investing a lump sum. This does not mean missing out on this year's ISA allowance: you can earmark your money for equities while keeping it in cash and feeding it on to the market over a period of up to 12 months. Known as "phasing", this strategy allows investors to smooth out some of the market's peaks and troughs.

Philippa Gee at IFA Torquil Clark recommends Fidelity's FundsNetwork to phase your money in because it will give you a wider choice of funds than you would get with an individual manager. Foreign & Colonial, Henderson Global Investors and Invesco Perpetual all offer this service as well.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Divers at Bouldnor Cliff underwater site in the Solent off the Isle of Wight, where the silt sample containing the einkorn DNA was found
life
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

    £17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

    SThree: Trainee Recruitment Consultant

    £18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Recruitment Genius: Business Control Manager

    £36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower