Some things are entirely predictable no matter what unutterable chaos is ensuing elsewhere. They appear as expected, are discussed in the same way and are carefully packed away again a little while later ready to re-emerge as the circles of life turn.
No, I’m not waxing lyrical about the springtime, particularly uplifting though it is this year. Forget the daffs and eggs.
We’re talking ISA season. And we’re in full swing.
In 2021, with just a few weeks of the tax year left and with some people – roughly half the population, in fact – sitting on money that would have been spent on night outs and holidays, where and how we stash it has never been so important.
We know the drill by now. Every year we each get a chance to save or invest our money without ever paying tax on what we earn. This year, the allowance – the amount you can save in a single year before HMRC comes knocking – is a sizeable £20,000 per person.
But it’s an annual allowance, and once it’s gone, it’s gone. So this time of year, as one tax year ends and another begins, is crucial.
Stashing the cash
The problem for cash savers this year, against a backdrop of ultra-low base interest rates, is that the number of products, and the interest rates they offer in return for our money, are in the doldrums.
“There are only a few weeks left until the new tax year and even though there has been a small rise in the number of ISAs this month, rates have fallen,” warns Rachel Springall, finance specialist for comparison site Moneyfacts.co.uk.
And that means the slimmest of gains are even more important.
“The differential rate between fixed ISAs and non-ISAs remains, reiterating the necessity for savers to carefully consider their tax-free allowance and personal savings allowance (PSA),” Springall adds.
“As it stands, the average one-year fixed rate ISA pays 0.38 per cent compared to 0.43 per cent on a one-year fixed bond. Longer-term fixed rates continue to drop too, but due to market uncertainties, savers may not want to tie their money down for long.
“As the savings market remains volatile, savers would be wise to consider challenger banks, which continue to take a firm place within the top rate tables, but also be mindful that a good deal doesn’t appear to last on sale for too long.”
The best rates on cash ISAs currently include Al Rayan’s instant access offer on £50 or more at 0.60 per cent, West Bromwich Building Society’s one year fixed rate deal at 0.5 per cent for a £1,000 minimum investment or State Bank of India’s 0.65 per cent on a two year bond for investments over £5,000.
Or, for those willing to tie their cash up for a couple of years, the top of the table spot goes to Shawbrook Bank right now, at 1.25 per cent on a minimum investment of £1,000. However, you’ll need to set that cash aside for seven long years to secure even that low rate of interest.
These frankly insulting rates, coupled with a sense that there are some undervalued opportunities out there in the stock market as we start to shuffle back from the Covid cliff-edge, could mean more of us select stocks and shares ISAs this year.
As always though, the potential for greater rewards in the form of funds tend to come with greater risk, even if you do encase them in an ISA wrapper.
If you’re a cautious, or lower-risk investor, Ryan Hughes, head of active portfolios at AJ Bell, suggests the defensive nature of the Personal Assets investment trust might appeal, particularly if you’re wary of the pace of the global recovery from Covid-19 and the return of inflation.
Investment trusts are known as “closed-ended” because they are set up as companies and traded on stock exchanges with the intention of offering investors exposure to a wide range of assets through one investment.
Like other listed companies, they issue a finite number of investment shares that are then traded between investors, who become shareholders in the company.
“Manager Sebastian Lyon takes a naturally cautious approach and has looked to build in some inflation proofing with 12 per cent exposure to gold and a further 35 per cent in index-linked bonds,” Hughes says.
“Add in 40 per cent in high-quality equities such as Microsoft, Diageo and Unilever that have the ability to compound returns and you end up with a very appealing portfolio. The approach of ‘winning by not losing’ is one that is often forgotten by many investors.”
For those with a more middle of the road attitude to risk, he suggests the Fidelity Special Values investment trust.
The UK market has lagged globally for a number of years, but with Brexit behind us this, Hughes suggests, may be the moment for UK equities.
Wrap it up
Meanwhile, if you’re a more adventurous investor, he notes the exposure to smaller companies available from Standard Life’s UK Smaller Companies investment trust.
“With assets of around £600m the Standard Life UK Smaller Companies trust is a nice size to be able to look across the market cap spectrum,” says Hughes.
“With high active share, sensible costs and an outstanding track record, this trust is a great example of the benefit of genuinely active management.”
Elsewhere, income seekers may be tempted by the Jupiter Japan Income fund, with Japanese companies evolving into “highly profitable” businesses with significant cash on their balance sheets that is translating into dividends.
And if you are determined to build back greener, Liontrust’s Sustainable Future Global Growth fund remains a firm favourite.
“The team at Liontrust have been investing with a sustainable approach for many years and have a great understanding of the way that companies are adapting to the importance of ethical, social and governance criteria (ESG) along with the way that the behaviour of people is also changing,” says Hughes.
“The fund has a strong growth bias with large allocations to technology and healthcare and therefore naturally has a strong allocation to the US. With valuations potentially looking a bit rich in some cases, this is in the adventurous camp but for investors that want exposure to sustainable themes, the Liontrust team is up there among the best.”
In fact, with as many as 2.6 million young investors planning to open a new or additional ISA this year, and another one in 10 of these 18- to 24-year-olds pouring more money into an existing ISA, this could be the year of green tax-free investing.
Fifty per cent plan to open a stocks and shares ISA with another quarter considering an Innovative Finance ISA that offers crowdfunded investments, ethical bank Triodos has found.
Either way, a massive 94 per cent of ISA holders under the age of 34 say they already have or would switch their money to an ethical provider, with almost three-quarters of over-35s agreeing with them.
Kia Commodore, founder of financial literacy platform Pennies to Pounds, agrees: “Young people are sparking a movement towards sustainable investments that will make ripples throughout the investment industry.
“We are seeing the rise of empowered investors, who want to know much more about where their money is going and what it is funding. They are taking control and making decisions to invest in companies that best align with their personal values.
“Investment providers who fail to join this movement may lose the backing of this new generation of investors in the long term.”
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