Begin your journey to the perfect holiday with an ISA

Investing in your dream trip is a journey in itself, says Emily Perryman, but it needn’t be complicated

If you want to escape the cold British weather but don’t have enough cash to splash out on an exotic holiday abroad, a Stocks and Shares ISA could be the first step on your journey to sun and sand. By picking investments wisely, you could be winging your way to a dream destination sooner than you think.

Saving for a holiday requires a different approach to investing than saving for long-term goals like retirement because your timeframe is much shorter. Owning individual company shares or a fund that only has equities may not be suitable because you may not have enough time to recover should there be a stock market downturn.

If you have a short investment horizon – i.e. less than five years – you may wish to go with potentially lower-risk assets like bonds and drip-feed money into your portfolio every month.

One option is a strategic bond fund. This has the flexibility to invest across all parts of the bond market to find areas with the best value. This could help protect you if interest rates rise, which can cause the value of bonds to go down.

Click here to find out more how to open a Stocks and Shares ISA

An example of a strategic bond fund is Henderson UK Preference & Bond which has a 4.9% historic yield. The fund is down 2.2% over one year but has a three-year cumulative return of 10.1%.

A bond exchange-traded fund (ETF), like iShares’ £ Corporate Bonds 0-5 year, would be a lower-cost option. It has a 12-month yield of 2.9% which compares favourably to its annual charge of 0.2%. The ETF focuses on short duration bonds.

Another way to get bond exposure is via Schroders’ MM Diversity Income. This fund aims to beat UK inflation by 4% each year over a five-year period. It has a 50% exposure to stocks, 15% in bonds, 10% in alternative assets and 25% in cash.

If you still want high-equity exposure you may wish to consider a multi-asset fund such as RIT Capital Partners. This investment trust aims for equity-type returns with less volatility. It has a portfolio of shares, funds, bonds, currencies, real assets and private equity investments.

It’s a good idea to keep your holiday savings pot separate from your other investments. This will enable you to apply a different asset allocation strategy to each savings pot and ensure your investments are on track to meet your respective goals.

Click here to find out more how to open a Stocks and Shares ISA

Data provided by Morningstar

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Please note the value of investments, and any income from them can go down as well as up and you may not get back your original investment. AJ Bell Youinvest do not offer advice about the suitability of their products or any investments held within them. Should you require financial advice you should consult a suitably qualified financial adviser. Tax rules can change in the future and the tax treatment depends on your personal circumstances. Past performance is not a guide to future performance and some investments need to be held for the long term.

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