Isas special: Refocus on shares

By NEIL SIMPSON
Updated:

 

BRITAIN'S love affair with shares has hit the rocks as stock markets bump along at their lowest level for two years. Just 12 months ago, investors were pouring in money. Markets were booming and record numbers took out tax-free Isas, believing they were on a one-way route to riches. The reversal of fortunes has been dramatic, with the most popular technology Isas worth a fraction of their value last spring.

So is it worth staying on the sidelines this year and avoiding investment Isas altogether? Independent experts say no, and most suggest it might be a good time to look at stock and bond markets.

Michael Owen, managing director of Plan Invest in Macclesfield, Cheshire, says: 'If you invest this month you will probably get more units or shares for your money than this time last year.

'And investors should remember the old rule that Isas are “use them or lose them” opportunities. If you have the money to invest in one tax year but don't, you can't make up the difference later. If you are investing for the long term, there is rarely a bad time to invest.'

His top tips for the tax year drawing to a close are relatively mainstream investment funds such as HSBC Income, Newton Higher Income and Schroder European. The first two are suitable for growth investors as well as income seekers because income payments can all be reinvested.

Mike Attree of adviser Torquil Clark in Wolverhampton also warns against investor apathy. 'In the past, people seemed keener to invest when markets were rising, and held back when they were relatively cheap,' he says. 'This year, we have the chance to invest when markets offer better value.'

He also suggests that investors focus on solid, UK-based growth and income funds this tax year, and says keen investors should consider buying them through one of the new fund super-markets. These effectively provide the tax-free Isa wrapper, allowing investors to select from a large number of individual trusts, and to move between trusts at any time for no extra cost.

Attree says: 'These are the most flexible ways to invest, and because you can split your contributions between different trusts they are ideal if you can't decide which fund manager is likely to perform best.'

He is also keen for investors already in the market to hold tight through today's lacklustre performance. 'Investment is not about immediate gains and you need to stay in for the long term,' he says. 'Markets might stay sluggish for a while, but the best fund managers should still be able to produce solid growth.'

Credit manager Julia Burnside intends to keep faith with shares. She took out a Norwich Union Pep a few years ago, but recently moved the cash to a Virgin Direct index-tracking Isa.

'I liked the fact that the Virgin Isa had such a simple structure,' she says. 'It follows the performance of the British stock market as a whole, rather than relying on the decisions of individual fund managers.

'I can check its value any time on the internet and while the stock market has done badly in the past few months, I still believe it is the place to be for the long term.'

Julia, 46, from Lincolnshire, hopes the fund she accumulates will mean a more comfortable retirement.

The right Isa can suit people seeking to boost their income at any age. Mike Frain of Kingston upon Thames, southwest London, took early retirement 18 months ago from his engineering job with British Aerospace.

He chose Jupiter Income for his Isa, even though he might not draw the income it produces for several years. 'I am reinvesting the income to boost the capital value of my fund,' he says. 'I hope that when I want to supplement my pension there should be a bigger lump sum in my Isa to get that job done.'

Mike, 58, is making good use of his new-found leisure. He has won photography awards and has become a keen watercolour artist. He says he has never regretted any past investments.

'Putting money aside for your future will almost always make sense,' Mike says, 'so I am glad I took the chance to use tax-efficient schemes such as Peps and now Isas.'

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