Stocks and Shares ISA

If you want to, you can invest your entire ISA allowance - £7,200 - into a Stocks and Shares ISA. You can invest a further £3,000 from October 2009 if you are over age 50. The higher allowance of £10,200 is available to all investors with affect from April 2010. Even if you want to invest only a fraction of your allowance, then there are plenty of choices available from across the world's stock markets.

There are many funds to choose from and, over the long-term, those with higher equity content have offered greater potential than equivalent investments in cash, bonds or commercial property. However, the risks vary and funds are therefore grouped into categories to give you an indication of their aims. For example, 'cautious' will tend to indicate a lower equity exposure; balanced funds might typically be 50% or more and aggressive funds normally invest the largest portion in shares and also overseas. Consequently, a more cautious fund combining UK blue-chip equities with bonds will be lower risk than an aggressive growth fund targeting 100% smaller companies or emerging markets.

More recently, the emergence of Absolute Return Strategies has been a prefered choice amongst investors. An Absolute Return Fund enables the fund manager to benefit from both peaks and troughs in stock markets. As the name suggests these funds are designed to produce results regardless of market conditions. However, please do not take this to mean the funds are not exposed to risk – they can still fall in value. They work within investment structures and can be likened to hedge funds. However, unlike hedge funds these investments are strictly regulated in the UK. The managers employ a number of measures to protect and preserve capital.

The Absolute Return sector and funds of this type are relatively new, but we feel will have significant impact on the cautious investment category as a whole. We have a higher weighting towards more global funds, providing greater investment freedom for the investment manager.

If you need income from your ISA then you may wish to consider a fund that delivers regular payments. A bond fund might be one solution and, relative to equities, is generally considered lower risk. Alternatively, you might choose a fund that mixes equities and bonds, thereby producing income but also offering the potential for capital growth.

Finally, there is the option to split your money across more than one fund and manager. If you don't know which funds are best, you can even opt to have this done for you by a professional - by using a fund of funds, where your investments are actively targeted at a portfolio of funds and investment schemes.

The ISA was introduced to replace PEP and TESSA accounts. Although existing investments within these accounts retain their tax efficient status, they cannot accept new investment. The PEP and TESSA names will become a thing of the past as the new ISA legislation encompasses these investments. You can however, transfer these holdings and retain the valuable tax benefits to alternative plan managers or to Wrap facilities.

Please contact us for further information