YOUR MONEY
Avoid a savings panic
The ISA deadline is fast approaching, but investors need to first ask themselves if they are prepared to take risks on the stock market
S WORDS BILL JAMIESON
‘Can you afford to put your savings at risk, and to lock away your investment? If in doubt, don’t’
pring is in the air – and with it the hurricane season of the annual Individual Savings Account (ISA) panic. Our mail
boxes and newspapers will be filled with urgent come-ons to invest in a tax-sheltered ISA before the 2013-14 deadline expires on 5 April. Against all investment advice to take care
on the timing of investment purchases and to spread our risk, even the most intelligent among us have responses as predictable as Pavlov’s dogs. We pile in at the very end of the tax year in a frenetic ISA panic to beat the annual cut- off deadline. Last year, for example, net retail sales of ISAs
soared from £256 million in March to just over £1 billion in April – the bulk of this in the first few days of the month. Sales then slumped back to just £201 million in May. As this year is set to be a bumper season for
sales of equity ISAs, here are three guidance points, namely, how to avoid the ‘ISA panic season’ and invest more intelligently; how to diversify risk; and how to take advantage of the many investment platforms available to construct a defensive ISA income portfolio and a more aggressive eclectic portfolio. My most emphatic piece of advice is to
consider whether you should really be investing in the stock market through an ISA at all. Can you afford to put your savings at risk, and to lock away your investment for a considerable period of time? If in doubt, don’t. The maximum amount that can be invested in an ISA for the tax year shortly ending is
£11,520. For the new tax year – that’s 2014-15 – it rises to £11,880. Of these totals, half can be
invested in a cash ISA – a popular choice for savers who want to enjoy the tax advantage but do not wish to take on the risk of investing in the stock market. However, with interest rates on fixed-interest investment still at a derisory level, savers will do well to lock in a cash ISA deposit rate much above 2.5 per cent. Every little by way of tax shelter helps, of course. But this is very little. This year, equity investment ISAs are expected
to see a surge in popularity. Encouraging evidence of an economic recovery, upbeat forward-looking business confidence surveys and last year’s impressive stock market gains – with the UK market rising by 14 per cent – will see many more investors opting for a stocks and shares ISA. But these are just the in which
conditions
investors should take care. The stock market has risen a long way. Shares have been priced at high multiples of company profits. And there are signs that the United States’ recovery pace may be slowing. Many professionals believe that a ‘correction’ is due – the euphemism for a fall in share prices of up to 10 per cent. The new year has already
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