Use or lose your cash ISA
PUBLISHED: 13:09 15 February 2019
Investing in uncertain times can pay longer-term dividends, says financial columnist Peter Sharkey.
I’ve just spent a week in France on business where I was consistently amazed at how expensive the country has become. For decades, the Gallic way of life, La bonne vie, has attracted Brits in their droves because its focus has always been markedly different to ours, more relaxed, less frenetic. And generally cheap.
Occasionally, this way of life can still be glimpsed. Walking between meetings early one afternoon, I was envious of the two guys sat at a restaurant’s sunny outside table where they enjoyed a typically French combination of fresh oysters and a glass of white wine. You wouldn’t see that anywhere in the UK (although this was Nice in late January), but goodness knows how much lunch was setting them back. French inflation has outstripped that of the UK for much of the past five years, while its economic growth is best described as haphazard.
Then there’s the demonstrations. It’s a bit like experiencing a return to the streets of Britain, circa 1975, as large groups of irate, flag-waving citizens bang drums and blow horns to the sound of vociferous (and regular) anti-Macron protest.
There are similar levels of unrest across Europe, while closer to home, we’re having to contend with what has been described as the poorest, least effective and most indecisive bunch of politicians the country has ever seen. The uncertainty for which they’re responsible has deterred many people from replenishing existing savings and investments; add in the prospect of a series of global trade wars, coupled with the erection of tariff barriers across the world and the investment outlook may appear a tad cloudy.
Yet this less-than-helpful backdrop shouldn’t deter people from taking advantage of their annual ISA allowance before April 5. Up to £20,000 may be invested in an ISA, but you either use it or lose it; once the new tax year begins, the allowance disappears.
Cash ISAs remain hugely popular: around 80pc of the money invested in ISAs goes into the cash version, though the best rate available for these savings is less than 1.4pc, or 1.73pc fixed for 12 months.
Elsewhere, ‘innovative finance ISAs’ have attracted attention thanks to their greater prospective returns, but these products are far from risk-free and often illiquid. Most innovative finance ISAs are created by crowdfunding platforms that offer investors an opportunity to enjoy inflated returns from peer-to-peer and crowdfunding lending.
The platforms appraise borrowing applications from consumers, property developers and small businesses and extend loans based upon the successful borrower’s requirements. Yet not all borrowing is secured, leaving the investor with little recourse should the borrower default. Rates charged by the platforms vary from 4pc to 12pc, but that reliable old adage, ‘if something looks too good to be true, it probably is,’ should be remembered before taking the plunge into an innovative finance ISA.
Savers and investors who enjoy the luxury of being able to invest over the longer term may, therefore, prefer to invest in areas and products that could improve their chances of achieving returns that outstrip inflation and provide a better income than cash investments.
Since experiencing a bumpy end to 2018, stock markets appear to have recovered some of their poise and value, which suggests that this could be an opportune point at which to acquire shares or funds at depressed prices before they benefit from a return of market confidence. This could, of course, be some way off as the uncertainty referred to above might remain with us for a while.
Nevertheless, savers and investors with longer-term horizons should not be deterred; indeed, one method by which they may avoid ‘full-on’ volatility, ie a comparatively short period of excessive price movement, is to drip-feed their stocks and shares ISA on a regular basis, usually monthly.
Admittedly, share and fund prices could be volatile in future – and for a prolonged period – but paying into a stocks and shares ISA by direct debit every month ensures that occasions when prices fall should be offset by the times at which they rise; ideally, the latter will, over time, exceed the former.
With less than two months before the current tax year ends, those who have not yet used their ISA allowance need to act. Doing so could mean that in future, they get to enjoy la bonne vie.
TAM Asset Management Ltd offer investors the opportunity to invest in a variety of mainstream and ethical ISA portfolios before the end of the 2018-19 tax year. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
More than 200 heavyweight firms, including Samsung and Microsoft are supporting a campaign to create one million tech-related jobs in London over the next four years. At present, 318,480 people are employed at tech firms in the capital, meaning the total will increase by 681,520.
Number of drivers who opted to attend a speed awareness course last year rather than accept a fine or penalty points. Police forces now collect more than £50 million annually from running the courses.
After a prolonged absence, which began in 2006, British American Tobacco will restart its sports sponsorship when the new Formula One season begins. The company won’t be promoting cigarettes, however, though details of its vaping products will adorn McLaren’s racing cars.
For more financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.