How to Choose the Best Investment ISA
Assessing Different Stocks & Shares Individual Savings Accounts
Nov 12, 2009
Those looking to use up some or all of their investment ISA allowance are faced with a variety of options. Unlike cash ISAs which tend to work in one simple way, an investment ISA can take many forms. Consumers may want to put some time into thinking how and where they invest their money to try and get the best returns.
Common Types of Investment ISA
There are a few different options to choose from here. In basic terms the consumer can opt to:
- Take out a managed investment product where their money is actively invested by a funds manager.
- Put their investment in a tracker investment ISA where their money is invested via a system that is linked to a specific financial index.
- Invest themselves via a self select ISA where they have a say in where their money goes.
Choosing between these options may not be that easy, however. They may all have different fees and may also come with differing degrees of risk.
Things to Consider When Choosing an Investment ISA
Choosing any type of investment can be difficult. There are generally no guarantees of performance with standard products and investors may be asked to assess their risk comfort level when choosing a product. In general terms the following may be useful:
- Tracker ISAs may be cheaper in fee terms than managed products as they simply track an index and need no specialist input. For some, these out-perform managed funds.
- A successfully managed fund can give much better returns if the manager gets his/her investments rights and pulls some lucky rabbits out of the bag. But, there are no performance guarantees here.
- Self select ISAs may only give a decent return on investment if the individual knows what they are doing (or gets lucky).
- Income types of funds may give better immediate dividends and returns but may not perform as well over time. Standard investments may go the other way.
How to Get Help Choosing a Shares ISA
Most people won't know enough about investments to make a truly informed choice at this stage. They may know enough to go for income over long-term growth or vice versa according to their circumstances. Or, they may feel confident enough to try their hand with a self select ISA. Most, however, will compare investment ISA performance tables and go with a company that is currently doing well.
This may work out fine but consumers would do well to remember that past or current performance means nothing in long-term investment terms. A shares ISA with phenomenal growth now could tank a few years down the line for a variety of reasons. Its manager might make mistakes or leave the fund. The index it might be tracking may start to do badly.
It may be worth considering talking to an independent financial advisor to assess options against needs. This could at least help the individual better understand their options and which one(s) may suit them best. Checking the costs of a shares ISA (i.e. the fees that may be charged) is also important. There's no point spending more than is necessary to hold this kind of account and fees can vary in the sector.
Finally, those looking to open an investment ISA should check out their limits and conditions first to make sure they qualify for its tax free status. They may also want to think about their cash ISA options.
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