Avoid the dangers of last minute ISA investing in five practical steps25 March 2015
With just days left until the end of the tax year on 5th April, the deadline for investors to utilise their £15,000 ISA allowance is drawing ever closer. While it is human nature to leave important decisions until the 11th hour – indeed the latest Tilney Bestinvest ISA was opened at 11.57pm on 5th April 2014! - a hurried ‘ad hoc’ investment decision could prove costly.
To help investors sidestep the usual pitfalls of last minute ISA investing, Jason Hollands, Managing Director at Tilney Bestinvest lays out five practical steps:
1. Don’t rush to invest without considering your overall goals
“Hurried decisions are rarely good ones and at this time of year it is easy to get swept up by the cacophony of ‘expert’ tips or dazzled by whatever market or fund has been performing well of late. It’s really important however to step back a little and think about what you are trying to achieve; growth, income or a balance of both, the likely time horizon you anticipating being invested and the level of risk you are prepared to take.
“If all of that seems a big ask with just days to go, then there is no need to panic. You can fund your ISA ahead of the deadline, parking your investment in cash, and choose your investments later, once you have had time to calmly consider your objectives and the investments best suited to achieving them.”
2. Invest some time thinking about asset allocation – it’s really important
“One of the most common mistakes made by investors is to treat each year’s ISA choice as an ad hoc selection which can mean that over time they accumulate collections of previously fashionable ideas, rather than building a well-structured portfolio that works together.
“In particular, it is vital to consider how any new investments will fit alongside those you already own. Even if all the ‘experts’ are tipping a particular market, it may not make sense for you to invest into a new ISA there if you are already very heavily exposed to it. It could also be the case that your portfolio was well balanced a year ago but has since drifted over time, as markets and asset classes perform at different paces. This can mean a more cautious portfolio could progressively become higher risk or vice versa and may no longer best suit your goals.
“The process of how you divide your portfolio up across different categories of investment, such as shares, bonds, property, cash and commodities and geographic markets is known as asset allocation. Many investors skip over asset allocation, however numerous studies* have concluded that well over 80% of the variances in portfolio returns come from asset allocation decisions rather than stock selection, so it is important to invest some time thinking about it.
“A starting point might be to use Tilney Bestinvest’s Free Investment Report Service & Tool (FIRST) as it enables investors to input their existing investments and receive some basic, free analysis of how well balanced their portfolio is compared to our asset allocation models, and how risky their portfolio is based on past volatility. The totally free-to-use tool is available at www.bestinvest.co.uk/first”
3. Diversification is good but be disciplined about it
“Asset allocation is about diversification and it also makes sense to invest across multiple funds from different companies, as no management group has a monopoly on talent. Once you have decided on the right asset allocation approach, carefully select individual investments that will help you achieve this. These might include funds, investment trusts or Exchange Traded Funds; actively managed choices and low-cost ‘passive investments’. Choose the right investment for each part of your portfolio.
“While it can be tempting to relentlessly add new investments each year, this can lead to a difficult to monitor, sprawling portfolio. In my view it is sensible to set yourself a discipline of investing in no more than 20 investments and to top-up some of these each year. If you are tempted to invest in something new, then consider whether it should replace one of the existing funds – it’s a great way of prompting yourself to think about whether you still have conviction in the investments you already own.”
4. Consider a managed option
“Some investors start out enthusiastically picking and managing their own investments but over time find they neither have the time or inclination to become their own fund manager. If that sounds familiar, don’t worry, you are part of the ‘silent majority’ who are looking for an investment not a weekend hobby.
“The good news is that these days you don’t need a fortune to have a managed portfolio, as there are plenty of multi-asset funds available which invest across different markets and asset classes to suit investors with different goals and risk profiles. Tilney Bestinvest’s own range of seven Multi-Asset Portfolio funds each provide access to around 20 underlying investment funds and the minimum investment is just £500.”
5. Don’t be late for the important date
“This year’s tax year deadline falls on a Bank Holiday Sunday, so if you are planning on posting ISA application forms, you do need to bear this in mind. To maximise your chances of making a successful application, it makes sense to utilise the Royal Mail’s Special Delivery service which commits to next day delivery with online tracking.
“Of course, the quickest way to invest in an ISA is online, and you will receive instant feedback on whether your application has been accepted. While online investing has come to the rescue of last-minute ISA investors, it is still possible to be thwarted at the eleventh hour if your internet connection goes down or you don’t have cleared funds in your account, so we urge investors not to play Russian roulette with an important and valuable allowance if at all possible. To successfully invest in an ISA, you need to do so from a UK personal bank account in the name of the applicant (not a friend or colleague) and payment can only be taken from a debit card not a credit card. A National Insurance number is also vital.
Hollands concluded: “An ISA is a ‘use it or lose it’ tax allowance and therefore it is important to utilise as much of it as you can before midnight on 5th April. However, it is essential to plan your investment ISA selection carefully and then once you have invested, to monitor and periodically rebalance your portfolio at least once a year.”
* Brinson, Hood and Beebower (1986) and Ibbotson and Kaplan (2000)
- ENDS -
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.
Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
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About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.
For further information, please visit: www.tilneybestinvest.co.uk
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.