With the new tax year fast approaching, you only have a couple of weeks left before your generous Isa allowance for this year – £15,240 – will be lost forever.
Investing OR saving 15 grand is a tall order for most young people. But if you’re not putting away as much as your bottom line will permit, you are missing out on a substantial tax shelter for your cash and an opportunity to bolster your financial position so your future self will say “THANK YOU!”
Sadly, the argument for saving into cash Isas has significantly weakened due to pathetic rates offered by banks and building societies, not to mention the monster of inflation munching away at the value of our cash. But this doesn’t mean that saving into cash is futile; far from it. You need an emergency savings pot that you can easily access if you absolutely have to (three months salary being a good minimum). Beyond that, it is still worth looking at bonds (if you can afford to tie up your cash for a while) and even Premium Bonds, despite the odds of getting a Kim Kardashian-style payday on this lottery diminishing all the time. As someone who has just got into the Premium Bond game myself recently, I intend to return to this subject so stay tuned.
So…cash Isas ain’t really worth the candle. Investment Isas are a different story. If you have any spare capacity in your budget to shovel a little bit into an investment Isa this tax year, I’d say go for it. Yes, you can invest thousands as part of the Isa allowance but even committing a few hundred pounds is better than nothing. So what have you got to remember? Fundamentally, this is a long-term strategy; you can’t expect to access the cash within five years and get any meaningful return. This also has to be money that you can afford to lose, because there is every chance you might (this is the stock market after all).
If you’ve plucked up the courage to start investing, then you may be looking for a bit of inspo. Now I can’t tell you where to invest because I’m not qualified to. And the following suggestions are just that, put together not by me but the very respected Association of Investment Companies. They’ve asked financial advisers to think about some suitable fund picks for “millennials” (let’s just go with the term for now, even though we know it’s a tad phoney!)
I am a fan of investment companies, and at this moment I have a personal preference to pick my own investments rather than let a so-called “robo adviser” do the work for me – although this could be a very good option if you making the final call on your investments is a step too far, and you don’t have the time or inclination to keep a close eye on your portfolio. Sure, it still pays to understand what’s going on in the markets even if you use a “robo adviser” (actually, they’re more like online wealth management services) but the idea is that they do a lot of the heavy-lifting for you (and potentially stop you from making daft, emotionally-driven decisions about how to manage your portfolio). But we’ll return to this topic anon, dinnae worry.
In the meantime, if you’re keen to go direct, you could do a lot worse than investment trusts; they have a very long-term focus, many have a superb track record and they’re pretty good on fees to boot. So here is what three financial advisers are suggesting for our Isa picks;
Investing in tech is a “natural fit” for the younger generations, says Dennis Hall of Yellowtail Financial Planning
Dennis Hall, CEO and financial planner of Yellowtail Financial Planning said: “For younger investors looking for a long-term investing adventure there is a bewildering choice. Investing in technology might be a natural ‘fit’ and my choices would be the Allianz Technology Trust or the Polar Global Technology Trust, investing in the companies that are shaping the modern world. But the advice to my own children is to invest in smaller companies, and I recommend the Standard Life UK Smaller Companies managed by Harry Nimmo.”
Sit tight, be patient and let Japan reward you, says Jim Harrison of Master Adviser
Jim Harrison, Director at Master Adviser said: “The younger generation with a longer investment horizon can afford to take on more risk, but I’m not actually convinced they need to. A traditional area for long-term ‘high risk’ investing is Japan, so Baillie Gifford’s Shin Nippon is worth a look, but with Japan you have to be patient, and investments can spend a decade out of the money. However, for the riskier element of a portfolio I prefer to use Foreign & Colonial Investment Trust and Henderson International Income. The managers would argue that they are no riskier than other equity funds (and over the longer term, I’d agree) but I think we can identify risk from Foreign and Colonial Investment Trust’s unlisted and private equity holdings, and for Henderson International Income from the fact that it is a young investment trust.”
Embrace the Chinese dragon, says Tim Cockerill of Rowan Dartington
Tim Cockerill, Investment Director at Rowan Dartington said: “China is now the second largest economy in the world and will no doubt soon be challenging the US for the number one spot. Whilst economic growth has slowed from the heady 10% p.a. level to around 6%, growth is still substantial and investment in Chinese companies offers a route to benefit from that growth. Fidelity China Special Situations is managed by Dale Nicholls who is proving to be a very adept manager. Some of the holdings are large cap, but its focus is mid and small cap – it also runs a short book so it carries a higher level of risk, but with time very much on your side at this age, the additional risk is well worth taking.”
Just to reiterate; I neither approve nor disapprove of these fund choices, and I am not necessarily invested in any mentioned. Your attitude to risk, and your investment time horizon, both need to be taken into consideration before you pick any funds, and there is no substitute for doing your research into funds, their managers and the investment strategy behind them so you are as satisfied as you can be that they meet your investment needs. If you have any doubts, consider using either online wealth management services or real financial advice (but only if you have a decent amount to invest, as the charges will probably make it disproportionately expensive).